Gas drilling complicates mortgage lending | Arkansas Blog

Thursday, October 20, 2011

Gas drilling complicates mortgage lending

Posted By on Thu, Oct 20, 2011 at 6:24 AM

A story from New York Times of interest in the Fayetteville shale:

It reports that banks are becoming wary of lending money for land on which gas wells might eventually be drilled and might become home to waste pits, environmental problems and other changes.

What happens if they lend money for a piece of land that ends up storing the equivalent of an Olympic-size swimming pool filled with toxic wastewater from drilling?

Fearful of just such a possibility, some banks have become reluctant to grant mortgages on properties leased for gas drilling. At least eight local or national banks do not typically issue mortgages on such properties, lenders say.

A credit union in upstate New York has started requiring gas companies to promise to pay for any damage caused by drilling that may lead to devaluation of its mortgaged properties. Another will make home loans only to people who expressly agree not to sign a gas lease as long as they hold the mortgage.

More generally, bankers are concerned because many leases allow drillers to operate in ways that violate rules in landowners’ mortgages. These rulesalso require homeowners to get permission from their mortgage banker before they sign a lease — a fact that most landowners do not know.

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