Federal lawmakers, bank regulators and law enforcement officials are broadening their efforts to ensure that the growing number of oil and gas leases being signed by landowners across the country comply with mortgage rules and do not create new risks for lenders, appraisers or landowners.
Edward J. DeMarco, acting director of the Housing Finance Agency, has said many leases are not filed with local officials.
The efforts stem from mounting concern that mortgages may be invalidated by people’s signing such leases without first getting permission from their banks.
Leases often allow certain activities, like storing hazardous waste on a property, that are expressly forbidden by mortgages because they can harm resale values. Such activities also violate rules set by institutions like Fannie Mae, Freddie Mac and Farmer Mac, which buy mortgages from banks.
Banks have become increasingly reluctant to give mortgages for properties with gas leases on them. Lenders have predicted that the conflicts between leases and mortgage rules are not likely to lead to foreclosures, but are likely to result in new rules from local banks and additional hurdles to getting a home loan or refinancing an existing mortgage.
As a result, lawmakers and regulators have called for investigations — and started their own — to determine the scope of the problem and potential solutions.
Representative Raúl M. Grijalva, Democrat of Arizona, sent a letter this week to the inspector general of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, asking him to conduct an audit to estimate how many mortgages that have been bought or sold by these federally backed agencies have leases on them. The letter also called for the inspector general to determine whether additional guidance should be provided to mortgage lenders, homeowners and potential borrowers.
“It is clear to me that we cannot wait any longer, and a strictly hands-off ‘buyer beware’ attitude is no longer appropriate,” Mr. Grijalva wrote.
In another letter sent last month, Representative John Sarbanes, Democrat of Maryland, asked the House Committee on Financial Services to hold a hearing to discuss how Fannie Mae and Freddie Mac plan to address these issues.
“These potential conflicts also pose major risks for the fragile housing market,” Mr. Sarbanes wrote in the Oct. 26 letter, explaining how the conflicts may result in secondary mortgage lenders facing new financial burdens. “Investors could attempt to walk away from any security backed violated mortgages.”
Several other members of Congress have sent letters asking about conflicting language in mortgages and leases to other federal agencies, including the Department of Veterans Affairs and the Federal Housing Administration, which provide federal assistance to mortgage borrowers, and to state regulators.
The actions come after an article in The New York Times last month that described the growing concerns about conflicts between mortgage rules and millions of oil and gas leases. State officials have also started investigating the problem.
“After reviewing a limited number of leases, we have concerns,” Maryland banking regulators wrote to federal regulators in an Oct. 24 letter. Aside from the conflicts between leases and mortgages found in other states, the state regulators pointed to provisions in Maryland regulations that could allow drillers to use land in ways that further violate mortgage standards.
In Ohio, bank regulators sent a letter in September to state lawmakers warning that if borrowers did not get their lenders’ consent before signing a drilling lease, they would be violating the terms of their mortgage. The regulators added that they planned to begin contacting banks to find out what steps they were taking to mitigate risks of such conflicts.
State lawmakers in Maryland, Ohio and Texas have also written their state bank regulators in recent weeks asking them to review the problem.
Bank regulators from Maryland, New York and Pennsylvania said they were planning a regional meeting on the matter in the next several months with officials from the Federal Reserve Bank of New York and the Federal Deposit Insurance Corporation, which acquired some mortgages when banks collapsed in the aftermath of the financial crisis. Plans of the meeting were discussed in a letter sent by state regulators to a Maryland lawmaker, Delegate Heather R. Mizeur, whose office has started working on legislation.
An article in The New York State Bar Association Journal’s November/December issue stated that the leases affected not only mortgages but also home insurance. In October, the Maryland attorney general, Douglas F. Gansler, published a statewide alert warning landowners to check mortgages before signing a natural gas lease.
Aside from the mortgage rules themselves, Mr. Gansler said that title insurance also often contains restrictions that, “if violated, would make it difficult to get title insurance and thus, difficult to get a mortgage or refinance.” He added that his office had convened a team of lawyers that was working on a landowners’ guide about the conflicts, to be published in coming months.
Last month, Maryland real estate officials also wrote about the issue to a commission appointed by the governor that is reviewing drilling regulations. The officials asked that the commission consider creating a registry of all leases in the state so that regulators and the public could determine which properties also had mortgages on them.
Over 100,000 acres in Maryland have already been leased for drilling, but the state has imposed a temporary moratorium on any new drilling while state officials review regulations. Officials at the Federal Housing Finance Agency have said they are still studying the issue.
In letters sent to Congress, the agency said that before it decided whether to issue additional guidance for banks it was waiting for results from an Environmental Protection Agency national study on the safety of drilling and the technique commonly used after drilling known as fracking, which involves injecting at high pressure millions of gallons of water and chemicals into underground rocks to free the gas or oil trapped there.
“Clearly, F.H.F.A wants to assure that no threats to collateral occur,” a letter from the Housing Finance Agency said. “At the same time, the agency does not want to impact adversely homeowners by addressing a matter that has not been determined by the responsible agencies.”
But several members of Congress have urged the agency not to wait for the E.P.A. study since it is not focused on mortgage rules or ways in which values might be affected by drilling.
In an interview, an official with the Housing Finance Agency who is not authorized to speak to the press, said the agency is still reviewing the matter. During a Nov. 3 House subcommittee hearing on the mortgage market, Edward J. DeMarco, the acting director of the Housing Finance Agency, said that his staff was finding it hard to gather information about the number of mortgages on leased properties, in part because many of the drilling leases were not being filed with local officials.
“I’d be very happy to go back and take a serious look at whether an audit is in order, whether that’s feasible and practical,” Mr. DeMarco said. “Our ability to effectively gather this information is uncertain at the moment.”
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Permalink Reply by dr j on I read this a few days ago. As usual with news reporting I don't there is a really clear picture of what is going on. I am not an expert in this situation but it appears the "big" dilemma is the fact that mortgages on properties with drilling leases violate the rules set forth by the FHA and therefore cannot be resold to the FHA etc. Since ( at least in Ohio) a horizontal well cannot be drilled (well pad placed) on a parcel of less than 40 acres this is probably a moot point as the FHA doesn't by those type of loans to begin with. In my admittedly limited experience of buying larger acreages/agricultural land/farms (twice)- only banks that held their own paper were an option in the first place.
I would also submit oil and gas drilling is nothing new under the sun. Many, many rural properties for many many years have had oil and gas wells on them with zero concerns such as this. I would guess the "new" worry is from the small properties who now can sign a lease for their small properties- which they couldn't before as there was no unitization. Previously -if you had 2 acres sitting next door to 100 acres and your neighbor had an drill site- your neighbor had a drill site. I don't think the banks were worried about your property value in that instance. Suddenly in the exact same situation they are now worried.
Sometimes I think these people think of ways to get their undies in a bunch - just to get their undies in a bunch. They must enjoy the sensation.
It' all about CONTROL. "Power To The People" has been replaced with "Power Over The People".......and , I might add , at an accelerated rate since 2008! Getting harder and harder to breathe free nowadays.
Glen what a hypocrite you are, Did you not just recently accuse me of being a nazi, a cult member or leader, and an ALOV sheep, all in the same breath basically. My crime, i stated that if some rabblerouser or landman-of-ill-repute were to come onto my property in an unwelcomed attempt to start the same kind of crap they start here (to get us to fight amongst ourselves- pretty easy as of late) i would "introduce them to Mr. Remington", my trusty shotgun, and ask them to leave post haste. The Castle Law comes to mind, the Second Ammendment to the US Constitution comes to mind, my personal freedoms are what i speak of, and now you cry foul after starting posts comparing myself and other ALOV group members to Nazis, cultists, and sheep. You mention free air now that you feel attacked, but not when you are the attacker of other peoples credibility (myself, Mr.Rae, ALOV members at large). My how the onion turns.
You so easily attack in a public forum the credibility of anyone and everyone for your own amusment, then speak of freedoms and rights in another post. How about my basic freedom and my rights to face my accuser, I can't do that in an internet based public forum where you, the mud-slinger, have complete autonomy. I am a landowner, a farmer, a small business man in good standing in my own and many other communities. The same can be said for Mr.Rae and the staff and members of ALOV. You would attack us and our good name, all in a public forum, simply because we are not your group of choice and you can easily be a bully online or on the phone. Then you tsk, tsk, chastize the leadership and rightly so, for their bullying tactics, look to yourself sir, for you are a hypocrite.
OH heck Glenn you got me, i am guilty of losing my cool with people who stir up trouble on this site, and you attacking ALOV set me off again. You see this site while it caters to the O&G industry, it also has created this forum for us landowners, and it does allow for interaction between the two groups. The landowners were using this site for friendly respectful conversation and the exchange of information between us then we were infiltrated by unscrupulous landmen causing trouble and some of your postings make you appear to me as a closet landman. If ALOV isnt your cup of tea, no problem, ALOV and its leadership, staff and members have done no harm to anyone, in fact they have done nothing but help all residents across the board with their work. Your attacks were uncalled for. Where i come from it shows a character flaw to attack people on the phone or on an internet site without hard facts, and accusations should be done face to face.
Now i should be flattered you said i was silver tongued, because i had difficulty stringing so many 50cent words together back there, but what the heck, the rest couldnt be further off mark. So i guess we can agree to disagree. I am a landowner that wants top dollar and a good lease, i have O&G experience so i am glad to share what i know when i think it will help, nothing more.
Who is Glenn Armstrong? Are you a closet O&G industry employee? Are you one who gets off on starting up trouble on forums just because you can? If this is your goal i guess its working because it appears this sort of back and forth is turning alot of good people off to this site and that is a damn shame, because good things are happening here, this business aside.
James: I am not any of these things you think I am. I sincerely apologize for losing my cool and will refrain from injecting my opinions into any group matters in the future. I just got caught up in the discussion and have absolutely no stake in Trumbull County activities. I admit that I was taken aback by the attention my opinions attracted. I am sure you are a man of integrity and only want what is best for the folks in your area so please accept my apologies and best wishes for Trumbull County.
Glenn
Glenn, Thank You and I too admit some fault. A certain W***G**** rep.got me pretty fired up and on the prod, and it takes a bit to cool down again. I will make more of an effort to play nice and to not hijack this great thread with personal rants. Good things are happening in these counties for landowners with OGM rights as long as we all keep our eyes and ears alert for trouble in the form of government meddling, industry manipulations, and those who would rather take some of our good fortune instead of making their own.
What really burns me up is now after owning my place for 18yrs., and after putting out all that sweat and blood, i might get a good payday and it seems that every politician out there is trying to mess that up.
I bought my 70 acre farm, a private sale, at the age of 27, not from a relative or friend either mind you. It was rundown in every way imaginable, a real money pit. It had no oil or gas well on it and i bought it with mineral rights. I told the wife then i knew one day i would get a well drilled and we would get a good road to the back acreage and free house gas and a small royalty check as a minimum. Maybe something would come along and really provide for our retirement. I have chased every industry lead i had gotten for all those years, trying to get a well drilled. Now it looks promising and this regulation and new tax business, is threatening to toss a wrench right in the middle. How do we stop it when our government is unresponsive to our wishes?
Permalink Reply by Jim Litwinowicz on Interesting article. I have friends that are realtors and in the banking industry that have expressed many if the same concerns. I do believe it is an issue, especially with people that signed a standard lease or one without the proper addendum. These companies can do some serious harm to a property unless prohibited by a good lease.
But I do fear a classic over reaction by the governing class. Officials often over reach and do "power grab" as Glenn has stated. Dr j makes a good point about small parcels not being drilled on but whose to say a company wouldn't run a pipeline or access road across the back of a ten acre parcel with a half million dollar house on it?
When the vast majority of wells were drilled out in the rural lands of the Great MidWest, the governing class had little concern. But now that drilling and installing large systems in the East is becoming a major event, they are going to make sure they at least appear to be involved.
It's about time that a 'watchdog' was put in the face of these oil companies!
They came thru the farmlands of Pa. with land people who promised much and left flimsy contracts...They really did harm...and leaving many with no way to renew their lease like promised because of their clauses that were difficult to know what it all meant...and many of the old time farmers/landowners did not really spend the time with an attorney (didn't know any in some areas that did oil and gas) and believed the landagents. My dad was one of those.
Now a 'watchdog' for those with mortgages is wise...yet without a mortgage it doesn't help the landowner...but clearly I see that these things are important regarding financing, insurance, and resale...if you were buying a property to homestead you and your family would be concerned if fracking fluids and natural gas were running in pipes across the property that you were considering buying.
I hope the banks don't overdue though....with going overboard with regulation and new rules as they have done with some things in their past.
“After reviewing a limited number of leases, we have concerns... (stated in the post)
they should have..
hopefully they will start taking concern over the flimsy 'assigns clause'.
http://gomarcellusshale.com/forum/topics/assigns-clause-and-a-global
Permalink Reply by Dan on Just moved a equity line to a small local bank for a lower rate. Took a while but they never had any concern of drilling affecting our property value. When banks have smaller amounts to loan or real estste they hold like forclousers, it affects how many loans they can generate. If you had money to loan would you risk it for 3.25% gross profit? I wouldn't. This is just an easy excuse for many banks to say NO to applicants without much explanation. Folks have been turned down for loans and the banks problem is their income sky rocketed thus showing instabillity. If I was a loan officer at a bank and I had to tell someone NO, I would much rather be able to tell them it's because of drilling or leasing than "I'm sorry, you made to much money....NO.
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