Fracking fractures property values
Why does the hydraulic fracturing, or fracking, method of drilling for natural gas and oil get a pass for its unintended consequences, such as soil, water and air pollution, water waste and earthquakes, among other really bad things?
No need to answer, but there’s another alarming outcome of fracking that could hit close to home, especially if your home is in Bradford County, PA, where 93 percent of the acreage is under lease to a gas company.
Nearly 63,000 residents there live above the Marcellus Shale and the fracking phenomenon is creating a new world of murky uncertainties with respect to home lending, refinancing and the real estate market in general.
In short, as a recent Grist article says, the fracking boom could lead to a housing bust. And we all know what happened to the economy in 2008 when the real estate market tanked.
The article quoted Bob Benjamin, a Bradford County broker and certified appraiser, who said that now when he 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 I give the appraisal to the lender,” he says. “They are asking questions about the well quite often.”
Nationally, lenders are becoming much more cautious about underwriting mortgages for properties located near or adjacent to fracking, even properties they would have routinely financed in the past, Benjamin adds.
The article continues: “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 homeowner’s insurance policies do not cover residential properties with a gas lease or gas well, yet all mortgage companies require homeowners insurance from their borrowers.”
That’s a Catch 22 problem for prospective home buyers in fracking areas.
Grist also relates that a landowner in Madison, NY received a jolt when an insurance company refused to renew a homeowner’s policy because there is a conventional gas well on the property.
“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.”
Some are beginning to realize the impact: Brian and Amy Smith live across the street from a new gas well in Daisytown, PA, an hour south of Pittsburgh. Last year, when they applied for a new mortgage on their $230,000 home and hobby farm, they were denied.
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, says the Smiths’ story shows that property owners are vulnerable to what happens on their neighbors’ land in fracking territory. “A [fracking] gas well brings commercial activity, can pollute drinking water and devalue the property.”
Radow also says it’s logical that high-volume horizontal fracturing — an operation in which millions of gallons of water mixed with hundreds of chemicals are pumped horizontally into layers of shale — has lenders worried. According to ABC affiliate WTAE, this appears to be the first example in western Pennsylvania of a homeowner being denied a mortgage because of gas drilling on a neighbor’s property.
Many large mortgage institutions have enacted policies that bar lending to certain properties near gas drilling and gas lines. And 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.
Much has been written about shale drilling’s potential to poison the soil, water, and air, but add fracking’s potential to poison the real estate market to the list. Fracking drills new meaning into having a mortgage that’s under water.
Image: Marcellus Shale Gas Well by WCN 24/7 via Flickr cc