Induced Seismic Risk and Residential Mortgage Lending

Induced earthquakes threaten real estate investments by negatively impacting property values. Despite growing environmental concerns, state and local regulations are often insufficient. This study examines mortgage lenders’ strategies in addressing seismic risk induced by fracking wastewater injection in Oklahoma. We find that lenders increased the likelihood of loan rejection or sale following heightened seismic activity, likely by active monitoring of earthquakes through official risk forecasts rather than passive exposure to local information. While all lenders were more responsive to earthquakes in injection-intense regions, the approaches of local and non-local lenders varied based on their relative advantages and reliance on public information. Interstate and out-of-state lenders ceased reacting to earthquakes after the 2015 energy price decline, whereas local lenders to Oklahoma markets maintained consistent reactions over time. These findings suggest that banks can actively gather information from diverse sources to manage underregulated environmental risks in the face of economic and policy uncertainty.