Clemson study shows link between hydraulic fracturing, decrease in mortgage defaults

A new study out of Clemson University shows that regions in which the hydraulic fracturing boom has taken place are less likely to have seen mortgage defaults.

The research was conducted by Lily Shen, assistant professor of finance at Clemson University's College of Business. Shen analyzed at data from 2004 to 2011 and found that mortgages originating in the regions of Pennsylvania in which hydraulic fracturing — more commonly known as "fracking" — occurs, had a mortgage default rate 58 percent lower than the state average.

“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.

Fracking is a process which entails the injection of fluid – such as a water, sand and chemical mixture — into shale beds at high pressure to free up petroleum energy resources, such as oil or natural gas.

Shen's research found that mortgage defaults took a sharp decrease after the fracking "boom" began in 2007, and that borrowers' credit (FICO) scores showed a 40 percent increase. 

The owners of property on which fracking occurs earn money via signing bonuses or royalty payments from the oil and gas companies. 

Retired U.S. Army Capt. James McCormick, program director of Vets4Energy, said Shen's study shows that fracking holds national and economic security benefits for the country.

“Americans don’t realize how important the increase in our energy production has been for our national security,” said McCormick, whose organization advocates for balanced energy policies that increase America's energy independence. 

“If this energy had stayed in the ground, we’d not only be paying more for our gasoline and electricity, and have less clean air, but our economy would be substantially weaker," he added. "We’d have millions fewer jobs, which means millions of American’s unable to pay their bills, keep their houses, and taxes. Without a strong economy, we become less stable. And that’s something our enemies would notice.”