Report: Fracking Can Decrease Property Values by 15 Percent

WASHINGTON, D.C. – May 2, 2014 – (RealEstateRama) — Attorneys from the law firm Ballard Spahr reported that fracking, which is the practice of accessing natural gas reserves from shale, can cause property values to decrease by 4 to 15 percent, HousingWire reported April 22.

Ballard Spahr outlined its findings in its “Oil and Gas Exploration for Mortgage Bankers” presentation.

The report noted that unknown and potentially hazardous effects of fracking can cause the property values for homes with gas wells to significantly drop, particularly where there are concerns about contaminated water, air pollution and earthquakes.

Harry Weiss, a partner in Ballard Spahr’s Environment and Natural Resources practice said the shale boom is not short-term, and it’s spreading and will soon stretch beyond the Marcellus shale that runs from Tennessee to upstate New York, although New York has yet to allow drilling. Fracking also is big in North Dakota, HousingWire reported.

The report noted that 3 to 5 percent of gas wells will see an environmental incident of some kind, which can make bankers hesitant to approve mortgages on properties where hydraulic fracturing is occurring.

“When you’re thinking about lending on these properties, there are a lot of different possible outcomes other than a disaster,” Weiss said, noting that it’s important for mortgage bankers to understand who owns the subsurface estate, as it’s not always the property owner, HousingWire reported.

Daniel McKenna with Ballard Spahr’s Mortgage Banking Group noted that Fannie Mae, Freddie Mac, the Federal Housing Administration and the U.S. Department of Veterans Affairs do not allow gas leases on their loans. He said that is not to suggest that bankers shouldn’t loan to owners of properties where fracturing is occurring, but they should exercise extra caution.

For additional information on fracking, read the Valuation magazine article “Fracking Up.”