At issue is how the leasing or selling of gas and mineral rights could affect the value of the mortgaged property.

By Nancy • November 15, 2009, 9:15 pm

"The expected boom in natural gas leasing has some local lending institutions reconsidering their mortgage policies.

And local borrowers who stand to make a lot of money from leasing their potentially gas-rich properties to energy companies are concerned, lenders say.

"Our switchboards have been lighting up,' said Frank E. Berrish, president and chief executive officer of Visions Federal Credit Union, headquartered in Endicott. "There has been concern and confusion."

Berrish may be getting more calls than other lenders about the gas lease issue. Visions holds more mortgages in Broome and Tioga counties than any other lending institution, the credit union president said.

At issue is how the leasing or selling of gas and mineral rights could affect the value of the mortgaged property.

One thing is certain the credit union president said: More documentation will be required in the future for Visions borrowers,.

"We are looking at this like a brand-new product," Berrish said. "All we are doing is looking at additional documentation to protect our depositors."

Berrish said attorneys for Visions have spent months researching the issue. The credit union, like others in the Southern Tier, is also waiting for the state Department of Environmental Conservation to release guidelines on drilling.

Potential environmental damage to properties could affect their future value, Berrish said.

Visions officials have come up with likely mortgage policy changes for borrowers who lease mineral rights to their properties.

Visions may require some of its borrowers to re-mortgage their gas-leased properties, which would entail a new appraisal and closing costs, Berrish said.

That's because gas leasing could lead to gas drilling and a potential de-valuing of property, Berrish said.

It's also because the secondary mortgage market -- federal lenders like Freddie Mac and Sallie Mae -- specify in their mortgage contracts that if a borrower signs or sells a right to a mortgaged property, the mortgage holder can demand immediate payment in full.

Other borrowers may chose to pay off their mortgages in full with money they make from the leasing agreement, Berrish said.

At Visions, issues with mortgages on properties with gas leases will be decided on a case-by-case basis, Berrish said.

What all borrowers need to do is check with their lenders on their mortgage policies, Berrish said.

M&T Bank does not require homeowners to refinance as the result of a gas lease, said Chet Bridge, vice president of corporate communications for the Buffalo-based bank, which has numerous branch offices in the Southern Tier.

The banking issues arising from gas leases, while recent development in Broome County and northern Pennsylvania, have been around for a long time in other areas of New York. Energy companies have been drilling for natural gas in western New York for decades.

"We understand there is a growing trend of gas leasing in the region, and we do offer mortgages for those properties," Bridger said.

Like Visions, M&T bank has developed a flexible approach for borrowers who opt for gas leases, Bridger said.

How a gas lease affects the value of the property and what happens when it's sold depends on the circumstances, Bridger said. -- and there is no standard answer.

"It's going to vary based on the individual property, the terms and conditions of the lease," Bridger said.  "