A priest near Orlando, Fla., borrows $9,000 for home repairs at an annual rate of 17.75%. A second-year Harvard Business School student wants $15,000 for foreign travel and gets a loan at 8%. A stepmother in suburban Sacramento needs $4,000 to cover the legal expenses of adopting her stepson and gets a loan at 23.75%.

These three borrowers have one thing in common. They’re part of a loan portfolio that I’ve built, sitting at my computer in New York, with the help of Prosper.com, a new San Francisco-based Web site that facilitates peer-to-peer microlending — that is, individuals lending money to one another directly.

For those needing a small loan, Prosper represents an alternative to credit cards or the credit union. And for those with a few dollars to spare, it can be a more entertaining option than savings accounts and bonds. Though there are a few other sites that provide similar services — and at least one, Zopa.com, that plans to launch in the U.S. later this year — Prosper, for now, is the most popular.

Prosper operates like both an auction site and an online dating service. It provides an eBay-like forum where lenders can evaluate hundreds of prospective borrowers, each seeking loans of $1,000 to $25,000, repayable over three years. The borrowers explain why they want the loan, Prosper provides information on homeownership, credit history and debt-to-income ratio, and the loan gets put up for bid at the maximum interest rate the borrower is willing to pay.

The loan requests read a lot like personal ads, complete with head shots of the borrowers, or cute pictures of their children and pets, enabling borrowers to find the lenders of their dreams. It’s hard to read them and not get hooked. Though some borrowers have prosaic needs, like trying to consolidate their loans or to fund home improvements, there are people facing eviction, medical bills to be paid and even a "Christian wife" trying to reverse her new husband’s vasectomy. The largely male lender community seemed eager to fund one woman’s breast-augmentation surgery, giving her a rate several percentage points below what her surgeon was offering.

Lenders also have the opportunity to offer microloans to offbeat small businesses — cat breeders, doll makers, ticket brokers. When I bid, it often feels like I’m voting on the soundness of a business plan.

Lenders can bid in increments as small as $50. One particularly enticing loan request for $6,000 garnered 95 bids. The borrower, who had excellent credit, began the bidding at 9.75%. Toward the end, eager lenders competed to lend money at increasingly modest rates. The loan was shared by 39 different people at a final annual rate of 8.43%. So long as she doesn’t default, the woman’s lenders will receive 7%.

Prosper was started by Chris Larsen, the co-founder of online mortgage broker E-Loan. Mr. Larsen says he wants to take on the credit-card companies who promote revolving, no-end-in-sight debt and the "payday" lenders whose annualized interest charges can easily exceed 400%. Although the level of involvement has been growing since Prosper opened to the public in February, the volume remains low, with only about 1,000 loans funded so far.

To participate, borrowers and lenders must submit to a credit check and then link their bank accounts to their Prosper account. All money transfers are automated, simplifying the repayment process. When a payment is due, Prosper withdraws the money from the borrower’s bank account and deposits it, on a pro-rata basis, into the various lenders’ Prosper accounts. The site, which imposes a 24% cap on interest rates, charges borrowers a 1% fee and lenders an annual half-percentage-point fee.

There’s always the risk of default, and in the event a borrower fails to pay the loan, it is turned over to one of the three collection agencies Prosper has contracts with. Prosper also encourages its borrowers to form "groups," which serve as mini credit unions. Should a member miss a payment, the group’s leader is contacted before the collection agency.

For every loan request that gets funded, there are many that fail, often because the borrower doesn’t offer a high enough interest rate to match his or her credit grade. All borrowers are assigned a grade based on their credit score with Experian, a credit-rating service. The highest is "AA," which the site says has a historical risk of default of 0.20% for a normal debt-to-income loan. The lowest is "HR," for high risk, which the site says has a historical risk of default of 19.1% for a similar loan. The "NC" designation signifies no credit history.

There are many HR borrowers who want loans at less than 10%, when they should be offering more than 20% — and these requests are systematically ignored. Wedding loans where a prospective bride or groom seeks help to pay for their forthcoming nuptials seem to have limited appeal as well.

A’s and AA’s, however, can get funding for almost anything, if they offer enough interest. Accountants taking flying lessons, small businesses buying point-of-sale systems and board-game makers seeking to expand were all able to acquire the funds they wanted. Many of these borrowers are simply trying to shave a few points off their car and credit-card payments or to leverage their excellent score to acquire a piece of equipment for their small businesses at rates that beat the local bank’s and without reams of paperwork. Depending on the size of the loan, the most creditworthy borrowers have received loans for 7% to 15%.

Though we all want to make money, there’s a surprising element of altruism. I like women in small business and single mothers. Another lender, an investment adviser by day, is partial to borrowers with medical issues, while another professional investor is keen on people seeking educational advancement.

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Tuesday’s bond market has opened in negative territory despite large stock market losses. The Dow is currently down 112 points while the Nasdaq has lost 29 points. The bond market is currently down 2/32, which will likely keep this morning’s mortgage rates at Friday’s levels.

The Conference Board kicked off this week’s data with the release of their Con sumer Confidence Index (CCI) for May. It showed a sizable decline in confidence from April’s reading, but was still higher than forecasts had called for. The release showed a 103.2 reading, down from the previous month’s 109.8. However, analysts were expecting to see a 100.9 reading. This means that consumers were more confident about their own financial situations than thought. That is bad news for the bond market, but with the early stock losses, mortgage rates have not bee affected by the news.

There is no relevant economic news scheduled for release tomorrow, but we will get to see the minutes from the last FOMC meeting. Market participants will be looking for how Fed members voted for the last rate hike. A unanimous vote could mean that all voting members are still concerned about inflation, meaning that more rate hikes may be coming. However, a divided vote will likely be construed as an indication that the rate hikes may stop in the near future. The min utes will be released at 2:00 PM ET, so if there is a market reaction to them it will be evident during afternoon trading.

The revised 1st Quarter Productivity and Costs report will be released Thursday morning. This data measures employee output and employer costs for wages and benefits. It is considered to be a measurement of wage inflation and is thought to allow low inflationary economic growth when productivity is high. Last month’s preliminary reading revealed a 3.2% rate, but I don’t think this piece of data will have much of an impact on the bond market or mortgage pricing. Current forecasts are showing an upward revision to 4.2%.

Overall, I think we have a busy week ahead of us. The big report of the week is Friday’s Employment data, but the most volatility in rates will likely come Thursday or Friday. With several important reports still due to be posted this week, please maintain contact with your mortgage professional if you have not locked an int erest rate yet.

If I were considering financing/refinancing a home, I would…. Lock if my closing was taking place within 7 days… Lock if my closing was taking place between 8 and 20 days… Float if my closing was taking place between 21 and 60 days… Float if my closing was taking place over 60 days from now… This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

a la mode

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What exactly classifies as a referral? If we were to create some parameters that define what a referral is, this is what it would look like: Synonymous with "recommendation" and "testimonial," a referral is a potential prospect that is directed or given to you by someone you know — or someone you don’t know — who feels that you are the best source for help or information regarding a specific subject, product, or service.

What makes a referral so incredibly attractive and desirable is that it is, for the most part, a warm lead. That is, when you approach a referral, there is less of a need to convince or sell them. A certain degree of interest, credibility, and comfort has already been established. Chances are, there’s already a need present. All you have to do then is turn that need into a want or a desire for your product using the questions in your needs analysis.

Typically, your clients are going to be the top source for referral business simply because they are the ones who actually utilize your product, making them the most effective testimonial you can find to endorse it.

The following dialogue illustrates how you can establish a referral agreement with your clients. This way, you will be able to identify the clients who are willing to become a referral source for you and the most appropriate time to ask them for referrals. This is a great example of how to set up your strategy to increase the amount of referral business you currently generate.

Here’s some specific verbiage you can use to enroll people in becoming part of your referral team:

You: "Ms. Client, may I take a moment to share with you how I build my business?"

Client: "Sure."

You: "Well, what I enjoy most about what I do and where my time is best served is working with my clients. I want to spend as much time as possible serving my clients and exceeding your expectations. In order for me to spend more time with my clients and less time marketing or prospecting for new business, I really need the help of my satisfied clients.

"Please understand, I’m certainly not asking for any referrals from you now. Personally, I feel that would be incredibly presumptuous to ask you to introduce me to other potential clients before you even have a chance to truly utilize and benefit from my services. After all, we just started working together!

"However, in a couple of months or even weeks, when you are clearly realizing the benefits of my services and have gotten even more value than you expected, would you be comfortable sharing the results you have experienced with others and introduce me to those people who might also benefit from my services?"
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Client: "Sure, I don’t see why not."

You: "That sounds great. Thanks in advance for this consideration. Just so I know what it will take to make you a raving fan, what can I do to make you comfortable enough to actually want to refer business to me?"

The most effective way to earn referrals is to overdeliver on the value your clients expect so that you actually exceed their expectations. Once you confirm this to be true, it now becomes a great time to ask for testimonials or a reference from a happy client.

If you find that you are having difficulty asking for referrals, then question how strong your belief is in your product, your commitment to serving your clients, and the value proposition you can deliver.

Setting up a referral agreement with your clients will remove any reluctance and make you feel much more comfortable when asking them for referrals. Since they now know this is something you will be asking of them, it’s OK to ask.

Keith Rosen is the author of Time Management for Sales Professionals. His recent best seller, The Complete Idiot’s Guide to Cold Calling, which has been endorsed by Dr. Ken Blanchard, has been featured in Inc. magazine and made it to the Top 50 Best Seller List on Amazon.com.

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