Fracking and Mortgage Default

53 Pages Posted: 6 Apr 2017 Last revised: 29 Nov 2017

See all articles by Chris Cunningham

Chris Cunningham

Federal Reserve Bank of Atlanta

Kristopher Gerardi

Federal Reserve Bank of Atlanta

Yannan Shen

Clemson University

Date Written: 2017-03-01

Abstract

This paper finds that increased hydraulic fracturing, or "fracking," along the Marcellus Formation in Pennsylvania had a significant, negative effect on mortgage credit risk. Controlling for potential endogeneity bias by utilizing the underlying geologic properties of the land as instrumental variables for fracking activity, we find that mortgages originated before the 2007 boom in shale gas, were, post-boom, significantly less likely to default in areas with greater drilling activity. The weight of evidence suggests that the greatest benefit from fracking came from strengthening the labor market, consistent with the double trigger hypothesis of mortgage default. The results also suggest that increased fracking activity raised house prices at the county level.

Keywords: mortgage default, hydraulic fracking, house prices, shale gas

JEL Classification: G21, Q51, R11

Suggested Citation

Cunningham, Chris and Gerardi, Kristopher S. and Shen, Yannan, Fracking and Mortgage Default (2017-03-01). FRB Atlanta Working Paper No. 2017-4, Available at SSRN: https://ssrn.com/abstract=2946813

Chris Cunningham (Contact Author)

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Kristopher S. Gerardi

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States
404-498-8561 (Phone)

HOME PAGE: http://sites.google.com/site/kristophergerardishomepage/

Yannan Shen

Clemson University ( email )

101 Sikes Ave
Clemson, SC 29634
United States

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