Can Fracking Have a Negative Impact on Your Mortgage?

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A recent article at grist.org suggests that fracking activity could have a toxic effect on your mortgage if you sign a lease with the oil and gas industry.

Quoting some of the main points from the article:


While not a new issue — and a little less interesting than flammable tap water — the legal and financial risks that gas drilling leases impose can’t be ignored (see last year’s Drilling Down series inThe New York Times). Homeowners and taxpayers are being faced with complex questions about the hazards and uninsurable risks associated with fracking, and its impact on mortgages and the housing sector remains unknown.
Leases don’t get much press in the context of the never-ending flow of coverage that fracking draws. But Elisabeth Radow’s 2011 editorial eloquently and persuasively captures what’s at stake:
The mortgaged property needs to stay safe and uncontaminated because lenders sell 90 percent of all home mortgage loans to the secondary mortgage market in exchange for funds to make new home loans. Gas leases allow gas companies to truck in tankers with chemicals, transport flammable gas and toxic waste, operate heavy equipment 24/7 and store gas underground, for years, all in a person’s backyard.
Gas leases also create easements which continue after the gas company leaves, with no funds for upkeep. Gas drillers can sell the lease without telling the homeowner, so there’s no way for a family to control who drills on their private property. Homeowner’s insurance doesn’t cover risks from fracking and neither does the gas lease. Industrial-sized risks are so expensive, even gas companies don’t get fully insured for them. Homeowners can get slammed with risks for the dangerous activity they don’t even control. [Emphasis added.]
To be sure, it’s a grim prospect for homeowners and communities alike. But what does this all mean in the broader context of the economy? Radow writes:
As fracking spreads across 34 shale-rich states, the $6.7 trillion secondary mortgage market — which holds 90 percent of the nation’s home mortgage debt — could get left bearing the liability; American taxpayers are next in line.
A growing number of banks won’t give new mortgage loans on homes with gas leases because they don’t meet secondary mortgage market guidelines. As a result, homeowners with a gas lease can be out of luck selling their homes since the lease impacts stick with the property. The impact falls not only on homeowners and taxpayers but also affects the banking, housing, insurance and secondary mortgage market interests and their investors. New construction, the sign of economic recovery, is threatened, too, because construction loans require a property to be free of the very risks that gas drilling brings.

Read the entire article at grist.org, and then feel free to discuss it here in the comments or in the dedicated thread at The Daily Digger forum.

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