Study shows fracking resulted in lower mortgage defaults
September 28, 2016
Despite the negativity many associate with fracking, the controversial technique for extracting oil and natural gas from the earth, had a positive impact on mortgage defaults in areas where fracking occurred, according to research by a Clemson University finance professor.
Despite the negativity many associate with fracking, the controversial technique for extracting oil and natural gas from the earth had a positive impact on mortgage defaults in areas where fracking occurred, according to research by a Clemson University finance professor.
The research, by Lily Shen, assistant professor of finance in the College of Business, examined data from 2004-2011 and found that mortgages originated in shale-gas fracking regions of Pennsylvania had a 58 percent lower default rate compared to the state’s average rate of default.
Fracking, or hydraulic fracturing, is an extraction process of drilling into the earth before a high-pressure injection of a water, sand and chemical mixture is used to force natural gas and oil to flow out of the well head.
The research, the first to link fracking with mortgage performance, seems to debunk a widely held belief that fracking has devastating impacts on the mortgage market.
“When there’s discovery of a mineral resource, a property becomes more than a place to live. The mineral rights are tied to property ownership. If a person defaults on the mortgage and loses the property, they lose the mineral rights and the potential revenue they could have generated from those rights,” Shen said.
The findings show that borrowers stopped defaulting on mortgages after the nationwide fracking boom, late in 2007, when extracting natural gas became technically feasible and profitable.
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