Natural Gas Drilling Could Affect Mortgages

Natural gas is becoming an increasingly important piece of the alternative energy jigsaw – over the past decade, fom Texas to New York, a million Americans have signed leases that allow energy companies to drill on their land.

But suddenly bankers and real estate agents and excutives are sitting up and noticing a problem: the dumping of toxic wastewater on the leased land.

Indeed, dumping toxic water has become so common that banks are now thinking twice about granting mortgages on properties that have been leased for drilling. According to this post, eight local or national banks refuse to issue mortgages on such properties.

Those in the credit business are looking for ways around this. For example, one New York-based credit union now forces gas companies to promise to pay for any damage caused by drilling that causes the value of mortgaged properties to fall.

Meanwhile, bankers are agitated because drillers operate in ways that violate rules laid out in the terms of most mortgages. One such rule – though it is not common knowledge – states homeowners must gain permission from their mortgage banker before signing a lease.

Increasingly, it is the homeowner who will suffer. When selling a house with a gas drilling lease attached to it, the growing reluctance of banks to offer mortgages on such properties then reduces the number of buyers.

According to Cosimo Manzo, a vice president of First Heritage Financial, a mortgage services company in Philadelphia:

“It’s truly Pandora’s box. If local banks do not require that leases comport with mortgage rules, Fannie Mae and Freddie Mac may stop buying mortgages from these banks.”

The message to draw from this? Think twice when the gent in the ten-gallon hat comes a-knockin’ on your door with a fat lease.