Kapell's up-tempo idea to foil foreclosure

My old songwriting buddy W.T. Davidson has a great heartbreak song that contains the hook, “Two people who need each other / are sittin’ alone tonight.”

He might be surprised to find that his lyric crystallizes a possible solution to the housing-mortgage crisis that’s hobbling our economy.

The idea is basically a way around the stark negativity of foreclosure. As it stands, millions of Americans, unable to afford their mortgages, are being forced out of their homes, which then creates two problems: homeless former occupants and unoccupied houses generating no income. In other words, people and homes who need each other are sittin’ all alone tonight.

Into this dilemma recently stepped David Kapell of Greenport, the village’s former mayor and, by the way, a musician himself, having learned bass from Sly Stone. Kapell is known around the North Fork as a problem solver who’s not afraid of bold moves, such as disbanding his village’s police force and court. Moves like that created major stirs in Greenport but ended up slashing the tax rate 60 percent, making possible the creation of Mitchell Park, with its carousel, etc., another controversial matter but one that even detractors agree was an economic catapult.

A while ago Kapell, a realtor by trade, came up with a way to do something about the dysfunction of foreclosure. “The theory is this,” he said by phone. “There’s a large percentage of people in foreclosure or at risk who arguably could never afford the houses they’re in. What do you do with them? If you put them out on the street they just have to look for someplace to rent while their house ends up blighting the neighborhood. Why not turn them into tenants?” Tenants in their own homes, that is.

In addition to sparing the owners the misery of eviction, it would also keep at least some money coming to the lender. A third big benefit would be the creation, through rent levels, of a way of evaluating properties.

That conversion of unpaid mortgages to paid rent, Kapell said, “would have a profound effect [by establishing] values of the so-called toxic debt underlying these properties,” the lack of which continues to hobble the economy.

Kapell has always been comfortable on the wonk side of politics. He started his government career as Greenport’s community development director and became locally famous for success in grant writing. In 2003, while still serving as mayor, he completed a one-year master’s program in public administration at Harvard’s John F. Kennedy School of Government. Among those he contacted about the “foreclosure-leaseback solution,” as it’s being called, was Noam Chomsky, under whom he took a course at MIT in 2003 and with whom he’s kept in touch.

Word also reached Dean Baker of the Center for Economic Policy Research in Washington, who, it turned out, had been working on the same idea. They exchanged e-mails, Baker’s ending with the remark, “We’ll see if this goes anywhere.”

The anywhere they’re hoping for is a new federal policy, and in fact there’s a chance. “U.S. government officials are weighing a plan that would let borrowers who have fallen behind on their mortgage payments avoid eviction by renting their homes instead,” began a recent Reuters story.

“The idea is so simple, I was afraid it wasn’t real,” Kapell told me the other day. “But I’ve learned that many times the most complicated problems have very simple answers.”

Baker offered a similar thought in the Reuters story. “It is a very simple, clean way to help these people,” he said. The story noted that he had discussed the idea with White House officials.

Reached in Washington, Baker said his idea and Kapell’s are aligned, and he harbors some hope that the Obama administration might put a version into play. Like Kapell, he thinks a major selling point is the valuation via rentals component.

“It’s why I was able to recognize the housing bubble,” Baker said. While house prices were soaring in the buildup to the smackdown, rents were not. If lenders had based their thinking on the reality of the rental market vs. the cotton candy of puffed-up purchase prices, “this wouldn’t have happened,” he said.


Jeff Miller / Long Island Business News / July 31, 2009