Fracking Boom Gives Banks Mortgage Headaches
An East Coast oil boom has promised potential riches to lucky landowners. But the oil rush may cause big headaches for some unlucky banks.
At least three institutions — Tompkins Financial (TMP) in Ithaca, N.Y., Spain’s Santander Bank and State Employees’ Credit Union in Raleigh, N.C. — are refusing to make mortgages on land where oil or gas rights have been sold to an energy company.
Due to technological advances in hydraulic fracturing, or fracking, huge swaths of territory are potential sites for oil and natural gas, ranging from New York state and Pennsylvania to West Virginia and North Carolina.
But much of this land is occupied by single-family homes and farms. If oil or gas is beneath his property, a homeowner could sell the rights to an energy firm, potentially reaping millions of dollars. That transaction could also derail a mortgage.
The uniform New York state mortgage agreement, used by Fannie Mae and Freddie Mac, states that “you cannot cause or permit any hazardous materials to be on your property and it specifically references oil and gas,” says Greg May, vice president of residential mortgage lending at Tompkins. “That alone would make it a problem.”