What about us? Responsible homeowners left out in the cold

After traveling to Washington D.C. so many times for work that he spent $65,000 on hotel bills in one year, Dan Klein -- a waste management consultant -- finally broke down and bought a 6,000 square-foot home on eight acres in Clinton, Md. as a second home.

At the time -- 2004 -- Klein paid $570,000 for the home. And by 2006, he claimed the home had appraised for $950,000.

With rates near all-time lows, Klein thought it would be a good time to refinance. "I was told I could get a 4.28% mortgage," he said, which would save hundreds of dollars a month.

His appraisal, which was arranged by Lending Tree, his lender, came in at only $300,000, however, and Lending Tree, would only give him a mortgage of $220,000. He was shocked to find out that his property had fallen in value from $950,000 in 2006 to $300,000 in 2010, especially in the D.C. area, where prices have gone down but have not crashed. He questioned the appraisal but could not get it changed.

Klein, who claims he has a credit score of 800, was confused. "I have millions in my bank account and I couldn't borrow $300,000?" he said.

"Dealing with the appraiser was a nightmare," he said. "If I'm not able to refinance I can imagine what others are going through."

Lending Tree spokeswoman, Mona Marimow, said the case highlights issues with Klein's underwriting that other homeowners should be aware of. Her company found that Klein was paying rent on the house and being reimbursed by his company.

"As a result, it was technically considered a rental property, not a second home," she said. Rentals are considered more risky and so Lending Tree charges higher upfront points for them.

She also mentioned that Klein was seeking to refinance 100% of the loan balance and when the appraisal came in so low, it meant there was no cushion between what he would owe on the mortgage and what the home was worth as collateral. That's especially hard to justify on a second home, which mortgage borrowers are more likely to walk away from if their finances goes south.

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