Flickr: respres

As bank-owned foreclosed properties pile up across the country, from abandoned houses in hard-hit neighborhoods to empty big box retail stores in failed strip malls, the fight over holding someone responsible for the brick and mortar mess left behind by the mortgage crisis continues to heat up.

More than two years into the crisis, local authorities still are slapping banks, servicers and speculators with fines ranging from $30,000 to even $90,000 for ignoring orders to take care of foreclosed and vacant properties under their control. The continuing punitive measures come as servicers already find themselves under fire for failing to complete more loan modifications under the Obama administration’s Making Home Affordable program – an effort that includes $75 billion in taxpayer money as incentives for the lending industry to rework loans. And it also comes as some realtors and lenders are mounting challenges to local anti-blight ordinances, and promoting the use of a mortgage database to track down servicers. Some housing advocates fear the industry will go beyond lobbying for the use of its mortgage system to push for getting rid of local vacant property laws altogether.

Illustration by: Matt Mahurin

The end result: Some of the same servicers the Obama administration is urging to complete more loan modifications still are walking away entirely from vandalized homes, or failing to fix broken windows, get rid of junked cars, clear trash, repair damaged roofs and gutters, or even demolish a condemned house, all of which can be violations of local housing codes. And housing courts keep hearing persistent arguments from servicers that they’re merely temporary custodians who can’t alienate investors by spending money to bring properties up to code.

“They may think it’s unfair, but the law provides that if you have ownership of a property, you take care of it,” said Cleveland Housing Court Judge Raymond Pianka, who regularly fines lenders $5,000 a day for properties that don’t comply with city codes. “There’s no provision to exempt corporations. I’m not going to treat them any differently than the individual property owners who come into my courtroom in wheelchairs and walkers.”

And while the lending industry contends its working more cooperatively than ever with local authorities, not everyone sees it that way.

“For every one vacant property owner who wants to work with the local government, there are five other property owners who are gaming the system,” said Joseph Schilling, a Virginia Tech urban affairs professor and co-founder of the National Vacant Properties Campaign. “My sense is the industry is also overwhelmed, almost as much as the code departments, and properties still fall through the cracks.”

Controversies over vacant properties are one sign of how the aftermath of the mortgage crisis may be as complicated to address as the initial waves of foreclosures themselves.

As TWI reported recently, the volume of REOs, or bank-owned foreclosures, is growing at an alarming rate, exacerbating the foreclosure crisis by sticking hard-hit neighborhoods with vacant and sometimes vandalized homes that drive down property values. REOs are foreclosed properties that lenders take back after they don’t sell at foreclosure auctions or sheriff’s sales. They keep the homes in inventory until they can be sold again.

RealtyTrac, an online foreclosure database, predicts that REOs will total 1.5 million this year, up from 160,000 just a few years ago. And a significant percentage of those REOs still haven’t been listed for sale. That means a glut of bank-owned foreclosed homes remains in limbo in many communities. Some banks hire property managers, but others let houses fall into disrepair. Neighborhoods in Cleveland, Detroit, and other cities with weaker housing markets have been stung by growing blight from REOs. In once-hot areas, like Atlanta, “zombie” subdivisions that were half-built and then abandoned mar the suburbs.

Speculators who buy REOs in bulk over the Internet, then fail to fix them up or abandoned them, have added to the crisis. And more loan defaults are expected, with 9 million foreclosures predicted by 2012, according to the Center for Responsible Lending. On top of all this, the bust in commercial real estate means communities also are increasingly stuck with empty big box retail stores, closed-down car dealerships, and vacant strip malls – more blight, and more problems.

For its part, however, the lending industry contends that it’s doing more than ever to solve the problem, stepping up to work more closely with state and local governments, and promoting a mortgage database that local officials can use to track down servicers and notify them of violations.

“There was a disconnect a few years ago, but we’re moving forward,” said Robert Klein, CEO of Safeguard Properties, a company that maintains vacant homes nationwide for mortgage servicers and banks. “There’s been tremendous progress made between code enforcement officers and lenders and servicers around the country. I think we’re all on the same page now.”

Empty houses with code violations resulting in stiff fines usually are the result of years of previous neglect, or cases in which servicers can’t be found to be notified of problems, he said. That situation is happening with far less frequency than in the past.  “The $90,000 fines are an exception to the rule,” Klein said.

But in remarks to a recent Mortgage Bankers Association mortgage servicing conference that continue to be passed around on housing and community development listerves, Cary Sternberg of American Home Mortgage in Irving, Tex., went further. Sternberg, the firm’s senior vice president of Real Estate Owned (RE0) properties, contended that servicers increasingly are caught “in the cross hairs of disgruntled and cash-strapped local governments” looking to drum up revenue. The local governments often don’t understand the legal and other constraints under with servicers operate when it comes to REOs, he said.

“They need to look for ways to keep their cities going,” Sternberg said. “It’s a difficult problem to deal with and servicers like us are dealing with cities and municipalities all over.”

In Chula Vista, Calif., Realtors and lenders complained this summer that the city’s landmark anti-blight ordinance, which includes fined of up to $1,000 for lenders that ignore code violations, was driving away new business. Chula Vista’s 2007 ordinance became a national model, with more than 200 other communities adopting similar rules. The city has issued a total of $1.3 million in fines. Realtors asked the city to lessen fines and give firms more time to repair properties. The city is reviewing possible changes to the ordinance.

While servicers and code enforcers have made real progress sharing information through the mortgage database, the huge volume of REOs and continuing foreclosures continues to swamp the resources of everyone involved, Schilling said.

And in some places, problems run even deeper..

“From my experience, servicing of properties in the inner city, particularly in African-American neighborhoods is either non-existent or erratic,” said Kermit Lind, a Cleveland State University law professor who specializes in housing and foreclosure issues. And, he added, “servicers have testified under oath that they receive instructions to stop maintaining properties and walk away. Servicers have complained that they cannot afford to bring their properties up to code and still make money selling them, and that their investors will not allow them to comply with local laws.”

Lind had little sympathy for the plight of servicers, noting archly that “any reasonable person should see that compliance with local building and housing codes protecting the health, safety and welfare of taxpaying neighbors should be subordinated to the duties and responsibilities of servicing and pooling agreements concocted on Wall Street.”

But Christopher Oswald, a lobbyist with the Mortgage Bankers Association, which launched the mortgage database project, said lenders hit with huge fines only face additional obstacles getting foreclosed properties on the market and into the hands of new owners. Communities may once have needed to levy punitive fines to get the attention of servicers, but that problem has been addressed by the mortgage database, known as MERS, he said.

The industry database was expanded to allow its use by local governments. Enter an address, and up pops the name and contact information for a servicer or property management firm.

“We’re both after the same thing – to make sure the properties are maintained,” Oswald said.

The MBA introduced database in a handful of pilot cities more than a year ago, and the effort has been so successful the group plans to expand it nationally, he said.

Schilling said the industry outreach has been particularly successful in the West, in fast growth markets, and in some individual cities such Dayton, Ohio. But there are still problems elsewhere. At a recent housing conference in Kansas City, Schilling said he “got an earful” from housing and code officials throughout the state about how hard it was to find and work with mortgage servicers.

The mortgage database itself has drawbacks. It covers many, but not all, mortgage loans. It has no data at all on commercial real estate owners. And in some cases, a property contact shifts once a house moves from foreclosure to an REO. “There are gaps,” Schilling said.

An even bigger concern is that the lending industry will lobby state and local governments not just to use the database, but to also get rid of their local vacant property ordinances. Communities still need those regulations on the books as a powerful tool to make sure servicers and lenders take care of their properties, Schilling said.

The MBA isn’t actively lobbying against any anti-blight measures, Oswald said. But it makes sense for some towns to realize they may not need anti-blight ordinances if they can track down owners through the database instead. Communities can then avoid having to issue large fines that may delay transferring properties to new owners, he said.

“Anything standing in the way of getting servicers to put properties back on the market would be of concern to us, and should be of concern to local code officials too,” Oswald said.

Some local officials already have plenty of concerns about getting foreclosed homes back on track.

In Cleveland, Judge Pianka said some banks and servicers finally are catching on, showing up in his courtroom to answer to violations and repair properties. He’ll often forgive the big fines if a firm cleans up its property. (Court records show Pianka reduced a $30,000 fine for U.S. Bank to $3,000, after the bank brought a house into compliance.) But a recent court docket also gave a glimpse of continuing disputes, from the speculator from Dubai, who bought six properties, sight unseen, off Craigslist, and hasn’t fixed them up, to a real estate company that purchased REO worth only $1,000, and already has racked up $50,000 in fines.

Pianka recently spoke to a conference of property management contractors sponsored by Safeguard, showing photographs of graffiti-scarred, abandoned homes, and letting the lending industry know he’ll hold them accountable for their foreclosures. Klein, of Safeguard, said the judge’s talk was well-received – another small step in a continuing battle over cleaning up after the foreclosure mess.

Fremont General Corp. once one of the nation’s top 10 subprime lenders, has agreed to pay $10 million to resolve charges it preyed on low-income borrowers and used misleading terms to sell them loans they couldn’t afford, the Boston Herald reports. The Herald called Fremont “America’s most notorious subprime mortgage firm.” And according to Massachusetts Attorney General Martha Coakley, who brought the suit against Fremont, its practices provided a model of the kind of predatory lending that caused the housing crisis.

The Attorney General’s Office filed suit on October 5, 2007, in Suffolk Superior Court against Fremont and its parent company, Fremont General Corporation based on the defendants’ unfair and deceptive loan origination and sales conduct. The complaint specifically alleges that the company was selling risky loan products that it knew was designed to fail, such as 100% financing loans and “no documentation” loans.  The complaint further alleged that the company sold these loans through third party brokers and provided financial incentives to these brokers to sell high cost products.

That pretty much covers just about everything that went wrong with lending during the boom.

Fremont is in bankruptcy now after shuttering its subprime lending operations. But the settlement is still noteworthy, as a reminder of the kind of lending that went on. It also means Fremont finally faces some consequences for its predatory behavior — along with the $10 million fine, Fremont agreed to not foreclose on “unfair” loans, Coakley’s office said. That means at least some borrowers who got steered into high-rate Fremont loans will get a break.

Speaking of foreclosures, just last week we noted the sad case of an 85-year-old widow in California who was losing her home of 50 years to foreclosure.

Her lender? Fremont.

Maybe it’s California’s turn to face down the neighborhood bully.

Sen. Chris Dodd (D-Conn.) (WDCpix)

Not long after foreclosures started to take off in 2007 and the mortgage market’s collapse began to cripple the economy, one lesson seemed obvious: The predatory lending practices that led to the crisis had to be reined in.

But despite massive government bailouts of banks and lenders due to losses from toxic mortgages, that reform still hasn’t happened. As the Obama administration urges lawmakers to quickly enact sweeping health care legislation this summer, the momentum to halt abusive lending practices and overhaul mortgage lending, by contrast, has stalled. A mortgage reform bill that passed the House in May was so complicated and contradictory it wound up angering some of the same consumer advocates who have been battling predatory lending. And – flaws and all – the measure isn’t likely to be taken up in the Senate anytime soon. Senate Banking Committee Chairman Christopher Dodd (D-Conn.) told reporters recently that mortgage reform will have to wait: “We’ve got a lot on our plate. We’ve got other things to do.” Dodd added that “There isn’t a lot of predatory lending going on right now… I’m not minimizing what happened before, and I don’t want to see a repetition of it, but there’s not subprime lending going on today.”

Illustration by: Matt Mahurin

To many housing activists, the lack of action on the predatory lending bill is the final insult of a failed campaign to rapidly reform mortgage lending – something that once seemed like a slam dunk. First, a mortgage cramdown measure that would have forced lenders to write down loan amounts for borrowers in bankruptcy failed, after 12 Senate Democrats joined Republicans in refusing to support it. Then came dashed hopes for a more comprehensive predatory lending bill, and for quick action on it. To some, the window to tackle mortgage reform is open right now, and the time to act is before the housing market recovers and lending picks up again. The failure so far to do so, they worry, means little is being learned in Congress from the most severe financial crisis since the Great Depression – and even less progress is being made to ensure it doesn’t happen again.

“If there was anything that seemed like a sure bet, it was reforming mortgage lending,” said Alan White, a Valparaiso University law professor who studies subprime lending and foreclosures. “But the momentum seems to be fizzling. It’s certainly possible the subprime market could come back in some form someday, and I am surprised there hasn’t been more movement for real mortgage reform. The Blue Dog Democrats are being strong advocates for for the banking industry, and that makes it difficult for the more consumer-minded Democrats to get some kind of regulation passed.”

It gets even more complicated. Housing advocates aren’t eager to launch a high-profile campaign against Dodd over his relegation of the predatory lending bill to the back burner, given that Dodd is in the midst of a tough re-election battle. Should he lose, the next in line to head the Senate Banking committee would be Sen. Tim Johnson (S.D.), the only Senate Democrat to vote against Dodd’s credit card reform bill.

Beyond that, the House bill seems to have split the housing advocacy community, with some supporting it despite its drawbacks, and others strongly opposing it. The controversy is surprising, considering the measure was co-sponsored by Rep. Barney Frank (D-Mass.) chairman of the House Financial Services Committee, who has a history of consumer advocacy. As TWI has pointed out, Frank is trying to promote lending reforms without totally alienating the financial industry.

But it’s the housing advocates who are angry this time. Nine consumer, housing and civil rights groups, including the National Consumer Law Center and the National Association of Consumer Advocates, criticized Frank’s bill, saying it undermines existing state consumer protection laws. The NCLC said the bill would “do more harm than good” by pre-empting the state anti-predatory measures and by limiting the ability to sue Wall Street investment firms that buy up risky mortgages.

“The bill is complex, convoluted, and simply will not accomplish its main goal – to fundamentally change the way mortgages are made in this country,” the NCLC said in a statement.

The bill still won praise from some other consumer groups for prohibiting lenders from steering borrowers into higher cost loans and for requiring lenders to verify that borrowers have the ability to repay their mortgages, a long-sought goal of many housing advocates. And it bans pre-payment penalties, another fixture of subprime lending. But the bill doesn’t apply strong penalties for violating the law, and it includes the limits on legal challenges. The measure seems to have something in it for both mortgage lenders and consumer advocates, which only served to make everyone unhappy, Valparaiso’s White said.

Explained one advocate, who declined to go on the record in order to speak freely: “It’s the most complicated, arcane, ridiculous, confusing piece of crap any of us has ever seen.”

Other mortgage reforms also are running into complications. The National Association of Mortgage Brokers, for example, plans to restart a legal challenge to a new government approved code of conduct for appraisals, which is aimed at keeping lenders and brokers from pressuring appraisers to inflate home values. The new regulation stems from a mortgage fraud lawsuit by New York Attorney General Andrew Cuomo. It went into effect May 1 and requires mortgage giants Fannie Mae and Freddie Mac to only buy loans appraised under the new standard.

The NAMB and other industry groups, however, contend the regulation isn’t needed and only adds to the cost of buying a home. The NAMB plans to file another legal challenge soon to overturn the rule, after withdrawing an earlier attempt, said NAMB President Marc Savitt.

His group also continues opposing any changes in the way brokers get paid for making loans – something once considered an obvious target for reform.

An industry practice known as the yield spread premium, a form of sales commissions for mortgage brokers, has long been controversial, with consumer advocates contending some brokers misuse it to con borrowers into higher-rate mortgages. Frank’s bill appears to outlaw the yield spread premium – but no one’s entirely sure. “There are four different interpretations of the language right now,” Savitt said. Regardless, he said, “the yield spread premium and mortgage brokers are being used as scapegoats right now. Mortgage brokers don’t develop loan programs and don’t underwrite and approve loans, so how could this all be our fault?”

The problem for mortgage reform, said Margot Saunders, an attorney with the National Consumer Law Center, is that with mortgage brokers and mortgage originators in every congressional District, Congress has plenty of financial incentive to listen to arguments like that from the lending industry – and already does so. As the New York Times noted in an editorial on passage of the House anti-predatory lending measure: “The Senate needs to improve on the legislation and ensure that stronger reforms quickly become law. To do that, Senators will finally have to stand up to the mortgage industry and its all-too-well-paid lobbyists.”

Saunders and others say they’re trying to remain hopeful the Senate will take up mortgage reform again in the fall – but they’re not counting on it. “Congress,” said Saunders, “just acts like homeowners don’t matter.”

None of the current proposals, for example, even addresses the possibility of linking compensation to a loan’s performance, which would cut out incentives for brokers and lenders to make high-rate mortgages that borrowers can’t repay, Saunders said.

But some see some positive signs on reform. Both the Federal Reserve and the Federal Trade Commission are working on new rules for mortgages and other types of lending, which are expected to require greater disclosures of terms and rates. The Obama administration is backing a proposal to create a Financial Products Safety Commission, which would regulate mortgages, credit cards, and other kinds of lending by requiring more consumer protections.

And Congress may be slow to act on mortgage reform not because of lending industry opposition, but because “it’s incredibly complicated” to do so, and “Congress is running out of time” with so many other issues on its plate, said Bert Ely, a banking industry analyst.

Whatever the reason, Congress’ plate is full – and mortgage reform isn’t on it, at least in the near future. In the meantime, 5.4 million mortgages are delinquent or in some stage of foreclosure, and home prices continue to fall.

So to remedy this, the Republicans keep pushing … tax credits to encourage people to buy more homes.

Economist’s View has a roundup of reactions.

From Tyler Cowen:

I’m not sure I understand the proposal, but here is what the NYT says:

The Senate on Wednesday voted to expand the economic stimulus package with a tax credit for homebuyers of up to $15,000, a provision championed by Republicans as addressing a root cause of the recession.

Like Arnold Kling, I wish to shift the economy out of housing, not into it again. I also believe that the supply of homes is relatively elastic right now.  The tax credit will subsidize the new buyers without propping up the price of homes.  Demand will go up, supply will go up, price will stay more or less on the same trajectory, and banks won’t be any healthier.  The subsidy goes to new home buyers and why should we be helping them above all others?  Aren’t they relatively wealthy on average?  (Not that there’s anything wrong with that.)  Aren’t some of them the dreaded “flippers” and speculators for that matter?  (Can we really enforce the primary residence requirement?)  Do we really want to push people into being less diversified and less geographically mobile in the labor market?

And from Ed Glaeser in the Wall Street Journal:

We are in the ruins of a housing market made worse by subsidized lending. The government has no business egging people on to borrow as much as possible to bet on housing prices. There is plenty of room to criticize the current stimulus plan, but Republicans need to adopt Ronald Reagan or Dwight D. Eisenhower, not Harold Ickes, as their intellectual role model.

It’s possible the only thing that may fix the housing market will be the pain of its correction. Bubbles have to burst eventually. Stimulating housing demand makes no sense, yet Republicans cling to tax cuts as if they are some magical cure-all. They are about the last thing a housing market that remains overpriced and overbuilt needs right now.

Certainly not a $900 billion stimulus bill, which is just what some of the country’s top economists said in recent days. Indeed, experts are nearly universal in their predictions that the economy in 2009 will continue to tank — stimulus bill or none. Instead, they’re promoting an enormous spending package as a way to prevent the trough from bottoming deeper than it’s headed.

A sampling:

Alice M. Rivlin, former head of the Congressional Budget Office: “The stimulus package is certainly not nearly big enough to get back to the bubble economy. With any luck, it will mitigate the job loss and make the recession less bad than it would otherwise be.”

Heidi Shierholz, economist at the Economic Policy Institute: “No one ever thought this would bring us back to the strong labor market of the late ’90s…There’s this incredible hope that [the stimulus] is going to solve things right away, and it’s just not.”

Chad Stone, chief economist at the Center on Budget and Policy Priorities: “The goal is to get the economy back to a higher level of employment, [but] everyone expects unemployment to rise in 2009.”

Practically, then, the stimulus bill is intended to act as a sort-of crutch, allowing the injured economy to heal itself more quickly. Politically, though, you can already guess the messaging of GOP strategists as the 2010 mid-term elections get closer: After all, it was the Republicans who controlled Congress and the White House in 2006, when home values were at their peak and unemployment was 4.4 percent (versus 7.2 percent now). And it’s Republicans who have proved more than willing to let the Democrats take responsibility for the stimulus package (The House vote, remember, attracted precisely zero Republicans).

Will voters remember that the bubble economy of 2006 was an unsustainable phenomenon?

As Stone of CBPP said: “If, in 2010, there are no signs of improvement, then there will be trouble.”

We expect the bankruptcy plan will provide about a 20% reduction in foreclosures. This is based on our belief that many delinquent loans are too far underwater relative to borrowers’ income, many properties are empty, and many borrowers wouldn’t want to go through the onerous bankruptcy process.

The Center for Responsible Lending estimates that more than 6,000 homes will be foreclosed for every day of 2009. So for each day the Democrats delay, by these numbers, 1,200 folks could have saved their homes.

Why the delay? It seems that, despite calls from some Democrats to stick the bankruptcy language into the economic stimulus bill, the Obama administration wants as many GOP votes as it can muster, to show that Washington has turned the page on partisan bickering. It’s a noble goal, particularly in the wake of a Bush administration that lived for partisan bickering.

Still, Republicans look poised to oppose the stimulus bill even without the bankruptcy provision. Even if that weren’t the case, one wonders if the show of bipartisan love is worth the number of foreclosures that might have been prevented.

Consumer credit card debt is approaching $1 trillion. (Flickr: doyoubleedlikeme)

Earlier this month, during the only vice-presidential debate of the year, Alaska Gov. Sarah Palin gazed into the camera and offered U.S. consumers some economic advice for confronting the financial crisis:

“Let’s do what our parents told us before we probably even got that first credit card,” the GOP hopeful said. “Don’t live outside of our means. We need to make sure that, as individuals, we’re taking personal responsibility through all of this.”

Consumers, it seems, are listening. For the first time in 17 years, retail sales have dropped for three months straight. Both for households and individuals, the trend might be good news: Many economists and consumer advocates have, for years, encouraged low- and middle-income people to pay down debts and save for stable futures.

Illustration by: Matt Mahurin

The trouble is, in an U.S. economy that’s overwhelmingly dependent on consumer spending — it accounts for 70 percent of gross domestic product– the reluctance of shoppers to open their pocketbooks only enhances the downturn.

“For any one household, that sounds like a good idea,” Steven Pearlstein, the Pulitzer Prize-winning business columnist for the Washington Post, wrote last month of families living within their means. “But if everyone cuts back at roughly the same time, a recession is almost inevitable.”

The genius of the U.S. economy has been this: It allowed people to buy things they couldn’t afford. More than three-quarters of U.S. households have credit cards. In May, the Federal Reserve estimated total debt on those cards to be $943 billion.

In recent years, the housing boom has been the primary driver of credit spending. Under the delusion that the price of homes would rise forever, homeowners refinanced, grabbed the equity and raced off to the islands or the mall. When the bubble burst, those dollars suddenly disappeared.

“It’s bad news for the economy because that’s what’s been fueling it,” Dean Baker, co-director of the Center for Economic and Policy Research, said of the housing boom. “There’s really nothing that can fill that gap.”

Nothing, many experts say, except another enormous federal intervention to get Main Street spending again. Heidi Shierholz, economist at the Economic Policy Institute, said such a package, to be effective, would have to create jobs, help states struggling with budget crunches and enhance safety-net programs like food stamps and low-income heating. She pointed to a figure, calculated by the American Society of Civil Engineers, that the nation’s infrastructure requires $1.6 trillion over the next five years just to get it into good condition.

“These are projects that need to be done anyway,” Shierholz said. “It’s the perfect opportunity for the government to step in and get it done. This is [its] role.”

Last month, House Democrats pushed a second stimulus package through the lower chamber. The $58-billion bill included an extension of unemployment benefits, billions of dollars for infrastructure projects and expanded funding for social services programs like food stamps and Medicaid. President George W. Bush had threatened to veto the bill but never got the chance. Senate Republicans killed it first.

Experts say that bill would fall far short of what’s necessary to jump-start the economy. “It doesn’t even approach the size of what we need,” Shierholz said. Both Shierholz and Baker estimated it would take between $300 billion and $400 billion in targeted new federal spending to do the job.

If trends continue, Congress may not have a choice. Retail sales fell 1.2 percent in September, the Federal Reserve reported this week — the steepest drop in three years. That marks the third consecutive month of decreased retail sales — the first quarter-long slump since 1992. Whether out of fear, prudence or poverty, Americans are spending less than they have in years.

Many observers blame the Bush administration for encouraging spending that families couldn’t afford — not without evidence. In September 2001, for example, with the nation just attacked and Americans scouring for ways to lend a hand, Bush took a podium in Chicago and told Americans to “get down to DisneyWorld in Florida. Take your families and enjoy life, the way we want it to be enjoyed.”

In December 2006, before the housing bubble burst and the credit markets froze, he made another simple request to American consumers: “A recent report on retail sales shows a strong beginning to the holiday shopping season across the country,” Bush said, “and I encourage you all to go shopping more.”

Messages like those have confused consumers — not sure if they should save for the sake of their families or spend for the sake of U.S. economy.

In a policy paper issued last month by the New America Foundation, researchers Reid Cramer, Rourke O’Brien and Alejandra Lopez-Fernandini summarize the trend: “Millions of low-income Americans,” they wrote, “are hearing two conflicting messages from their government: Save and Don’t Save.”

Democratic leaders have vowed to return to Washington after the elections to take another shot at passing a second economic stimulus bill. Many experts predict they’ll have to pass something, if only to create the appearance that they’ve taken on the crisis before Congress adjourns for the year. The White House remains resistant to the approach, but some observers anticipate Bush will abandon his reservations if the economy continues to tank.

“He’s already hugely unpopular,” said Baker. “I don’t think he wants to make matters worse.”