Fracing = no mortgage
Is the below article old news? Because the mortgage agencies in this quote are even stronger that the EPA. I find this quote interesting. "It also specifies that owners must "take affirmative steps to prevent the renewal or expansion" of a current gas lease."
Fracking leaves property values tapped out by Jason Notte
Depending on where you stand and what's beneath the ground you're standing on, fracking is either paving the way toward American energy independence or dooming it to methane-addled water and man-made tremors.
The one certainty about fracking, however, is that it doesn't exactly do wonders for property values.
As reported by The Atlantic, mortgage lenders are becoming more cautious about approving loans for properties near fracking sites. Lawyers, real estate agents, public officials and environmentalists have noted that banks and federal agencies are revisiting their lending policies to account for the potential impact of drilling on property values. In some cases they are refusing to finance property with or even near drilling activity.
That's particularly problematic, considering that many home insurance policies do not cover residential properties with a gas lease or gas well, though all mortgage companies require home insurance from their borrowers. Part of the problem stems from uncertainty over the effects of the process itself.
As MSN Money writer Charley Blaine explains, fracking is technically "hydraulic fracturing," which means using small explosions and lots of water and smaller amounts of chemicals to free up oil and gas resources locked in rocks far below the earth's surface. Fracking was largely responsible for a 14.4% jump in U.S. oil production in 2012 to 6.47 million barrels a day -- the most since 1995 -- and has set off a huge boom in natural gas exploration and production in Texas, North Dakota (pictured), Montana and the Appalachians.
As a result, the U.S. imported just 41% of its oil in the first five months of 2013, the Energy Department says, down from 65% in 2005. Some projections say the combination of new supplies from fracking and alternative sources and energy savings from conservation could make the U.S. energy self-sufficient by 2030, although the country will still be an oil importer.
Critics don't have to look very hard to find reason to fear the process, however. In the 2005 Energy Policy Act, the fracking industry was specifically exempted from violations under the federal Safe Drinking Water Act. State regulations weren't affected, but the question is whether state regulators have the will or resources to act.
A New York Times report documented a contamination in Jackson County, W. Va., in the mid-1980s. And a Vanity Fair magazine article documented groundwater contamination issues around Dimock Township, a small town in northeast Pennsylvania, from wells drilled by Cabot Oil & Gas (COG +0.27%). The controversy was the basis for the anti-fracking movie "Gasland."
Brian and Amy Smith live across the street from a new gas well in Daisytown, Pa., just an hour south of Pittsburgh. Last year, when they applied for a new mortgage on their $230,000 home and hobby farm, they were denied. ABC affiliate WTAE notes it's the first case in western Pennsylvania of a homeowner being denied a mortgage because of gas drilling on a neighbor’s property.
Mortgage provisions prohibiting gas drilling, meanwhile, are becoming more common. The "mineral, oil and gas rights rider" on the loan paperwork at Sovereign Bank says the mortgage will be recalled automatically if the property owner transfers any oil or gas rights or allows any surface drilling activity. It also specifies that owners must "take affirmative steps to prevent the renewal or expansion" of a current gas lease.
The Federal Housing Administration's lending guidelines prohibit the financing of homes within 300 feet of a property with an active or planned drilling site. Mortgage lenders Fannie Mae and Freddie Mac also prohibit property owners from signing a gas lease or keeping hazardous materials on their property. Doing so puts their mortgages in "technical default."
While drilling companies tend to pay well for drilling rights, that's of little use to homeowners if the property they're sitting on can't be sold or isn't eligible for a mortgage if it does.
Views: 2118
Replies to This Discussion
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Permalink Reply by Amiteone on -
I agree with you 100%, and would like to add that this subject should be debated by the land owners and not the vote buyers.
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Permalink Reply by Joe Aldridge on
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George,
I guess what it comes down to is something will have to be included in the lease that would require the company to carry insurance that would protect the bank/mortgage holder form any adverse claims from their operations.
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Permalink Reply by Skip Peel - Mineral Consultant on -
Two sides to every coin: In NW LA where land owners and bankers are quite familiar with the O&G industry and exploration and production as it affects surface ownership, there is no discount in the valuation of land in areas of ongoing development. In fact quite the opposite where mineral rights are concerned. Banks regularly allow owners of mortgaged land to enter into O&G leases as they see it as an increase in the value of the land and the mortgagor's ability to meet their loan commitment. Landowners, and their real estate agents particularly, are interested in mineral appraisals that help to determine fair market value when a property sale includes the mineral rights. The sales price can go up considerably if a buyer also wishes to acquire the mineral rights.
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Permalink Reply by 2p6y7ycljui0u on
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W. Va and Pa are hardly neophytes with the industry. These people have been dealing with energy companies for over 150 years (coal and oil). Drilling started there. This issue is not going away and it is of note Sovereign Bank is playing hardball. What stands as practice here can change as financing depends on more than local standards. This must be considered. It is only brought up. Significant it is such an irritant, a prudent person considers all. Especially if you are a landowner, not a driller or landman. Once again, thanks to TC for posting.
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Permalink Reply by Joe Aldridge on
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Skip,
I agree with you. There isn't a problem when we deal locally. The problem is the Mortgage Banker from outside of the area plus HUD, VA and FHA. So if this is the direction things are going, according to the article, would it be of value to put a clause in a lease that would require the Lessee to carry insurance to protect the Lessor from a situation where the mortgage would be compromised by operations?
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Permalink Reply by Skip Peel - Mineral Consultant on
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As far as I know there are few "local" banks that have mortgage guidelines for local mortgagors regarding O&G leases. Most of the banks in urban Shreveport-Bossier are branches of large regional or national banks. The GHS archive has plenty of past discussions on this subject.
http://www.google.com/cse?cx=partner-pub-4090140519734877:160982733...
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It is becoming a topic of conversation in the mountain west. This is a topic that will not go away. Right or wrong, Yankee or Cajun. It can have legs and must be considered. What can stop it?
http://coloradopols.com/diary/47930/mortgages-may-be-tipping-point-...
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Permalink Reply by Skip Peel - Mineral Consultant on
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Yes, I do see a pattern here. A potential problem to be solved with a CLAUSE. Yes, just as simple as that. You will have a CLAUSE to be honored just as you had a NO COST CLAUSE. That way you can just sign away and not worry about this situation. As the O&G og says, you are just a chicken little to consider it. While you are at it, give them an option to renew that lease for four more years.
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Permalink Reply by Steve P on
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I don't think a clause in the lease would serve any purpose. No insurance company would ensure against declining values of property. In my view, there is a bit of hysteria at work here. Companies have been drilling in urban areas in the Barnett Shale for many years, and I've not heard of any stories about declining home values in those areas or mortgage issues.
I know nothing about Sovereign Bank, but their efforts will likely only disadvantage a few homeowners or frustrated home buyers. Drillers can put together a block and drill wells whether or not they have every 1/2 acre lots leased. Every state has regulations that limit how close a well, fracked or not, can be located to a residence. Should Fannie Mae move in this direction, then that will be a big problem for drilling in densely populated areas. But the actual risks are pretty low, so at some point the mortgage market will right itself.
Maybe my next career should be putting together a private mortgage firm, financed by big oil, to provide home mortgages within active exploration areas. Some valuable use for those billions that oil and gas companies are sitting on.
but the simple fact is that most of the current shale plays in the country are already under lease, and at least in the Haynesville, Barnett Shale and Eagle Ford, most leases or HBP. So the mortgage financing industry may be late to the game.
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Permalink Reply by Two Dogs, Pirate on
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The mortgage companies have probably already signed off on subordination documents before the bonus money is ever paid but who knows. Some O&G may just blow the mortgage off but many get the subordination before they pay the bonus. This is where striking the warranty clause comes into play.
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Permalink Reply by Steve P on
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well, I think that we know that Sovereign Bank in PA won't be signing off on the subrogation. I don't think that most operators worry about mortgage holders until they get ready to drill. I haven't lived in Louisiana in more than 25 years so I don't know how mortgage lending works there. But I have lived around the country during the interim, and only once has my "lender" for my home actually hung on to the mortgage. All the rest were sold to big lenders - in my case, Wells Fargo and Chase were the most frequent holders of my mortgage (I don't move that much, but I do re-finance routinely when the rates warrant it). So, while I routinely admire and agree with Skip Peel's comments (I think he was the one who made this comment), life today is not so simple as walking into the bank and talking with your friendly banker about your O&G lease. Perhaps it still is in Louisiana, but not in most of the rest of the country.
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