Fracking Boom Gives Banks Mortgage Headaches

Other big mortgage lenders with operations in fracking areas have yet to implement an outright ban. Wells Fargo (WFC) has "no blanket restrictions" on its lending policies on properties where there is oil or gas drilling, says spokesman Jim Hines.

Lending decisions are made independently and consider a variety of factors that are "property and transaction specific," Hines says. Wells Fargo has made loans on properties with oil wells, but those loans often require more research and documentation before approval, he says.

Northwest Bancshares (NWBI) in Warren, Pa., "has discussed and reviewed this topic at length" but has yet to change its procedures, says spokesman Jim Holding. Northwest in August added a royalty rights management unit to handle a rising number of landowners who have sold rights for oil drilling.

PNC Financial (PNC) in Pittsburgh has not made policy changes with respect to fracking, a spokeswoman says. A spokeswoman at F.N.B. Corp. (FNB) in Hermitage, Pa., declined to comment.

Severed mineral rights has not been an issue in the western United State, where homeowners have always assumed that their land had a mineral right that was separate from their mortgage, says Kent Siegrist, a Tulsa, Okla., lawyer. "In Oklahoma, it's virtually impossible to buy property with the minerals still attached to it," says Siegrist, who represents oil companies and landowners.

No bankers in western North Dakota, where the oil industry is centered, have raised concerns about fracking and mortgage lending, says Rick Clayburgh, president and CEO of the North Dakota Bankers Association.

There are also spots in the eastern United States where mortgage lending appears unaffected by fracking. In West Virginia, landowners who sell mineral rights typically receive such a large windfall that they are able to pay off the mortgage, says Joe Ellison, president and CEO of the West Virginia Bankers Association.

"I've heard there are tremendous sums [landowners] are getting up front," Ellison says.

Fracking could have a negative influence on property values, so it is an issue all mortgage lenders should review, says Steve Hvozdovich, Marcellus Campaign Coordinator for Clean Water Action. A potential problem is oil leaks, which can cause water pollution, he says.

"A lot of people in rural Pennsylvania rely on well water for their homes," Hvozdovich says. "If you have contaminated well water, you don't have a reliable drinking water source, which is going to make it almost impossible to resell the home."

Leaks have been problematic at some fracking sites. In September, a Tesoro pipeline reportedly leaked 20,600 barrels of oil onto farmland in western North Dakota. Still, many lenders are overreacting to the potential conflict between fracking and mortgage lending, Siegrist says.

"Some of the banks are scared, and I don't think it's justified," Siegrist says. "They see the propaganda that fracking has caused significant surface damage or damage to the water supply. But I can tell you the majority of these wells are ... checked to make sure problems like that don't exist."

The ultimate warning sign for banks may be insurance, May says. A borrower can't get a mortgage without homeowners' insurance. "We're actually seeing insurance companies cancel [insurance] renewals when they find a [gas or oil] lease on the property," May says.