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Fracking Boom Could Lead to Housing Bust

Fracking Boom Could Lead to Housing Bust

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Published by: fleasedny on Sep 17, 2013
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09/17/2013

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Fracking boom could lead to housing bust
By 
When it comes to the real estate market in Bradford County, Pa., where 62,600 residents liveabove the Marcellus Shale, nothing is black and white, says Bob Benjamin, a local broker 
and certified appraiser. There aren‟t exactly “fifty shades of grey,” he says, but residential
mortgage lending here is an especially murky situation.When Benjamin fills out an appraisal for a lender, he has to note if there is a fracked well or an impoundment lake on or near the property.
“I‟m having to explain a lot of things when Igive the appraisal to the lender,” he says. “They are asking questions about the well quiteoften.”
 And national lenders are becoming more cautious about underwriting mortgages for  properties near fracking, even ones they would have routinely financed in the past, Benjaminsays.
That‟s a real problem in Bradford County, where 93 percent of the acreage is now under 
lease to a gas company.Local banks are still lending because they have to if they want the business in the county,
according to Benjamin, who has been involved in the area‟s real estate market since 1980.But, he says, “The big boys, Wells Fargo and the other banks are probably pretty similar,they are going to protect their butt.”
 Lawyers, realtors, public officials, and environmental advocates from Pennsylvania toArkansas 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 casesare 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 mortgagecompanies require homeowners insurance from their borrowers.
“Well, that is a conflict,” says Greg May, vice president of residential mortgage lending at
Ithaca, N.Y.-based Tompkins Trust Company.
 
Last month, a landowner in Madison, N.Y., was surprised when their insurancecompany refused to renew their homeowners policy because there is a conventional gas well on their property.While the media and environmental gro
ups 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.
“I think we are on the tip of this,” says Steve Hvozdovich, Marcellus Shale coordinator for 
Clean
Water Action in Pennsylvania. “Whether you are the homeowner trying to get
homeowners insurance or the neighbor [to a fracking site] who is trying to refinance, there
are just so many tentacles to this. I don‟t think people are grasping all the impacts of 
natural
gas drilling.”
 
Benjamin doesn‟t often hear property owners talk about the issue. “I don‟t think most areconcerned about it,” he says. “But I think they may have to be in the future.”
 
The first denial
 Brian and Amy Smith live across the street from a new gas well in Daisytown in WashingtonCounty, Pa., an hour south of Pittsburgh. Last year, when they applied for a new mortgage ontheir $230,000 home and hobby farm, they were denied.According to ABC affiliate WTAE,this appears to be the first example in westernPennsylvania of a homeowner being denied a mortgage because of gas drilling on a
neighbor‟s property:
 
In an email, Quicken Loans told the Smiths, “Unfortunately, we are unable to move forwardwith this loan. It is located across the street from a gas drilling site.” Two other nationallenders also turned down Brian Smith‟s a
 pplication.
“I think a lot of folks nationally are watching this case,” says Rep. Jared Polis (D
-Colo.), acongressman who represents areas north and west of Denver. He noted that in his home
district fracking leads to a “haircut on a property‟s values.”
 
“I think it is something that the banks would frankly be smart to look at,” Polis says.
 
Elisabeth N. Radow, a lawyer and chair of the League of Women Voters of New York State‟sCommittee on Energy, Agriculture and the Environment, says the Smiths‟ story sho
ws that
 property owners are clearly vulnerable to what happens on their neighbors‟ land in fracking
territory.
“A [fracking] gas well brings commercial activity, can pollute drinking water anddevalue the property.”
 
Radow says it‟s logical that high
-volume horizontal fracturing
 — 
an operation in whichmillions of gallons of water mixed with hundreds of chemicals are pumped horizontally intolayers of shale
 — 
 
has lenders worried. “They are trying to protect themselves,” she says.
 The Obama administration has so far taken a hands-off approach to regulating fracking, ashave many states, so the banks are trying to figure out how to proceed in uncertain territory.
 
“What is the federal government doing to protect the Smiths of the world?” asks John R.
 Nolon, a land-
use and property professor at Pace Law School. “Banks are out there on thefrontier of this regulatory chaos saying, „We can‟t assure ourselves this is a safe technology because there is this fragmented regulatory process.‟”
 
A very clear stance
 Radow advises people looking to purchase a home anywhere with drilling to do their homework before buying.She predicts that homeowners will start seeing mortgage provisions prohibiting gas drilling.She saw one earlier this month from New Jersey, where the gas industry is lobbying Gov.Chris Christie (R) to open the Delaware River basin to fracking. The 
 [PDF] on loan paperwork from Sovereign Bank says the mortgage will beautomatically 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 preventthe renewal or expansion” of a current gas lease.
 A spokesperson for Sovereign Bank said the company would not comment for this story.May, the lending firm vice president from Ithaca, says he is neither pro- nor anti-fracking, buthe thinks property owners and prospective buyers need to be aware of these kinds of mortgage issues.
“That is one of the top lenders that has taken a very clear stance,” May says of the SovereignBank document. “We need to pay attention to this.”
 Another big unknown is how homeowners might be affected by horizontal drilling happening
underneath their property, May said. “Horizontal drill bores radiate out from the vertical boreup to one mile in each direction, which could potentially impact other owners‟ fee
-simple
real estate ownership,” May says.
 
The problems are here
 Twelve hundred miles southwest of Bradford County, Connee Robertson and her husbandrun an animal rescue center on 1.6 acres overlooking Little Red River in Heber Springs, Ark..Robertson moved to the area in 1993 because she fell in love with this part of the Ozarksknown for its pristine rivers and lakes. That was before gas companies such as ChesapeakeEnergy discovered the Fayetteville shale formation in the early 2000s.Once that happened, the majority of property owners in Heber Springs leased their gas rights.
“Everyone saw dollar signs,” Robertson says. “Everyone ends up regretting it. The problemsare here now.”
 

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