Looking for a loan? Stay the 'frack' away from oil, banks say

by MPA23 Aug 2013

The 1960's television show The Beverly Hillbillies depicted a family that became significantly wealthier after finding oil in their backyard. While some are optimistic that drilling for “Texas tea” is the way to amass a small fortune, lenders across the country are thinking twice before approving mortgages for properties with hydrochloric fracturing going on anywhere in the area.

"Banks are out there on the frontier of this regulatory chaos saying, 'We can’t assure ourselves this is a safe technology because there is this fragmented regulatory process,'" John R. Nolon, a land-use and property professor at Pace Law School said to The Atlantic.

Hydrochloric fracturing or fracking is the is the fracturing of rock by a pressurized liquid. Politicians are divided on whether the process should be expanded in the United States. Pro-fracking groups see it as a way to increase domestic oil production while anti-fracking groups say that the process causes groundwater pollution.

Elisabeth N. Radow, a lawyer and chair of the League of Women Voters of New York State’s Committee on Energy, Agriculture and the Environment said  to The Atlantic that lenders will start adding mortgage provisions prohibiting gas drilling.

“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,” Radow said. “Signing a gas lease without lender consent is likely to constitute a mortgage default.”

Recently, Sovereign Bank in New Jersey began including Mineral, Oil and Gas Rights Riders with their loan paperwork for areas where fracking is already occurring. The rider states that the mortgage will be automatically recalled 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.  

While FHA (Federal Housing Administration) and Department of HUD (Housing and Urban Development) will not provide financing if surface or sub surface gas rights have been leased within 300 feet of a residential structure OR within 300 feet of property boundary lines, individual mortgage institutions are enacting policies to protect themselves even more.

Looks like Jed Clampett won't be qualifying for a second mortgage anytime soon.


Should CFPB have more supervision over credit agencies?