Lenders Say Fracking Presents a Mortgage Risk

When Rolling Stone wrote about the big fracking bubble, they drew comparisons to the false accounting practices that drove the recent financial crisis. But the links to financial trouble may be as real as they are metaphorical, as the State Employees Credit Union, one of North Carolina's major mortgage lenders, has just announced that fracking can represent a very real mortgage risk:

The standard Fannie Mae/Freddie Mac Deed of Trust document recorded for most real estate liens prohibits the homeowner from selling or transferring any part of the property during the term of the loan without obtaining prior written approval from an official of the financial institution holding the mortgage. This includes the oil, gas and minerals found on the property. Any property financed with a State Employees’ Credit Union mortgage falls under the aforementioned restriction. Approval of exceptions from State Employees’ Credit Union would not be granted due to heightened risk concerns associated with extraction of these natural resources, including hydraulic fracturing technology (otherwise known as fracking or horizontal drilling).

Jordan Treakle of The Rural Advancement Foundation International, whose work has helped inform our own community and landowners' guide to fracking, notes that "the policy adds another layer to debate over legalizing fracking in North Carolina. It highlights the risk that mineral rights leases can present for landowners even before drilling starts.”

Given that a recent unprecedented rise in earthquakes has now been directly linked to fracking, landowners would be wiser than ever to seek both legal and financial advice before signing away mineral rights.

Lenders Say Fracking Presents a Mortgage Risk
Landowners who sign away mineral leases may be ineligible for mortgages, presenting a real financial risk long before any drilling starts.

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