Fracking boom could lead to housing bust

[dixiegrrrrl]

Key parts of this story:

While the media and environmental groups have focused on shale drilling’s potential to poison the soil, water, and air, they’ve largely overlooked its potential to poison the real estate market.

Lawyers, realtors, public officials, and environmental advocates from Pennsylvania to Arkansas to Colorado are noticing that banks and federal agencies are revisiting their lending policies to account for the potential impact of drilling on property values, and in some cases are refusing to finance property with or even just near drilling activity.

Real estate experts say another problematic trend is that many homeowners insurance policies do not cover residential properties with a gas lease or gas well, yet all mortgage companies require homeowners insurance from their borrowers.

Plus, there is this interesting aspect about Fannie Mae ( Fannie Mae bought millions of mortgages from the banks, remember??)

The Federal Housing Administration’s lending guidelines prohibit financing for homes within 300 feet of a property with “an active or planned drilling site.”
Fannie Mae and Freddie Mac also prohibit property owners from signing a gas lease.

May said many owners are now in “technical default” under the terms of their mortgage if they signed a gas lease without first getting consent from their lender.

Another clause in Fannie Mae and Freddie Mac mortgages prohibits hazardous materials on a residential property.
“It comes as a surprise to a lot of people. They weren’t aware that their mortgage came with those restrictions,”
May said.

http://grist.org/climate-energy/fracking-boom-could-lead-to-housing-bust/?source=Patrick.net

Thanks to DU member ms. smiler who found this story.

[pscot]

1. Highly recommended

[aquart]

2. Now that's fascinating.

Totally new knowledge for me and much appreciated.

[dixiegrrrrl]

3. I love the part about Fannie Mae..

which bought all those mortgages in a bailout for the banks
and ended up owning homes which violate its own rules.
( including my house, because they say they own the mortgage, and I do not own the mineral rights,
some previous seller does)

[ms.smiler]

4. This article just threw up a bunch of questions in my mind.

So what impact is fracking having upon property values? How difficult will it be to obtain mortgage loans on properties in or near fracking areas? How difficult will it be to obtain insurance on those properties? How difficult might it be in the years ahead to sell those properties? Could health insurance and life insurance costs rise for persons in such areas?

I read of a town in Texas where fracking depleted their source of water. What is the impact of such an event upon property values? I know I can’t imagine purchasing a property in a location that lacked a water supply. How does a lack of water hinder economic activity and jobs?

I may have missed it, but I found nothing about gas leases in my standard Form 3039 mortgage contract. So naturally I wonder how Fannie or Freddie, who were not parties to this contract, could enforce a clause that does not appear in the contract. There is though, the Hazardous Substances clause.

21. Hazardous Substances

“Borrower shall not cause or permit the presence, use, disposal, storage, or release of any Hazardous Substances, or threaten to release any Hazardous Substances, on or in the Property. Borrower shall not do, nor allow anyone else to do, anything affecting the Property (a) that is in violation of any Environmental Law, (b) which creates an Environmental Condition, or (c) which, due to the presence, use, or release of a Hazardous Substance, creates a condition that adversely affects the value of the Property.”

It seems to me that none of those gas companies could drill upon mortgaged property without the Breach of the mortgage contract. I have no idea what these companies are paying for leasing rights, but they should also pay off the loans on mortgaged property. I also wonder if this is another tool that can be used to stop fracking.

This really stinks because the gas companies could always point to this clause and say the homeowner violated their own mortgage contract and adversely affected the value of their own property, and I expect the gas companies would escape the responsibility for depreciating the value of the property.


dixiegrrrrl, I shared this with you because we share an interest in so many of the same issues. Thank you for realizing that it would be of interest to other DU members.