“The pace at which properties are entering foreclosure is slowing,” Mark Fleming, chief economist with CoreLogic, told CNNMoney. “(Even though) servicers nationwide stepped up the rate at which they were able to process distressed assets.”

So why are foreclosures dropping?

For one, lenders are more cautious. Homes are entering the foreclosure process more slowly as lenders carefully scrutinize paperwork before processing a foreclosure after getting into big trouble for mishandling some foreclosures in recent years.

Also, with today’s stricter credit conditions, lenders are choosier about approving loan applicants, reserving approvals for mostly low-risk borrowers with a lower chance of default and foreclosure.

Banks are also doing more loan modifications to prevent foreclosures. And when a home does land in foreclosure, banks try to process them faster or encourage a short sale.

“This is the first time in a year that REO sales (those of bank-owned properties) have outpaced completed foreclosures,” Fleming says. There were 103 sales of bank-owned homes for every 100 homes in foreclosure inventory in December 2011. That’s compared to November 2010 when there were 94 REO sales for every 100 in the foreclosure process.

Source: “Homes in Foreclosure Decline by 130,000,” CNNMoney (Feb. 8, 2012)

The decision means the era of historically low rates on loans – and savings – that the Fed kicked off at the peak of the financial crisis in late 2008 will run longer unless the economy improves faster than Fed policymakers predict.

The Fed said unemployment would stay near its 8.5 percent level through the end of this year and could still be in the range of 6.7 percent to 7.6 percent at the end of 2014. Housing remains depressed while growth in business investment has slowed, it said.

Meanwhile, inflation is staying below 2 percent.

Fed Chairman Ben Bernanke left open the possibility that the Fed could do more to fight joblessness, even at the short-term risk of inflation above the bank’s 2 percent annual target.

“There has been some encouraging news recently,” Bernanke said at a press conference. “There are positive signs, no doubt. At the same time, there are mixed signals,” as indicators such as retail sales growth have been disappointing, he said. Policymakers are also worried about Europe’s financial crisis, he said.

The Fed’s moves, and especially its decision to discuss its thinking about rate policy much more publicly than it has in the past, are laden with consequences for savers, borrowers and consumers, said PNC Financial chief economist Stuart Hoffman.

“It means that if you own certificates of deposit and you’ve bemoaned low rates, bad news – you’re going to get that this year, next year and the year after,” Hoffman said. “If you’re a borrower, very low mortgage rates are going to be here for a while. Some people may delay making decisions, but other people will plan for the future” and prepare either to buy or renovate homes, he said.

Bernanke acknowledged that savers are hurt by the low rates. “We realize that low interest rates impose a cost,” he said. “The savers in the economy are dependent on a good economy to get a good return.”

Wall Street reacted favorably to the news, pushing stocks higher and interest rates lower. The Dow Jones industrial average climbed 83 points to 12,759.

The yield on 10-year U.S. Treasuries, which closed at 2.06 percent Tuesday, dropped as low as 1.91 percent before settling at 1.99 percent.

Most Fed governors think the economy will grow by 2.2 percent to 2.7 percent this year, with unemployment at 8.2 percent to 8.5 percent and core inflation at 1.5 percent to 1.8 percent, the Fed said.

The U.S. House passed the bill on Friday, followed by the Senate on Saturday. To become law, it still needs President Obama’s signature, which is expected.

The National Association of Realtors® (NAR) ended its Call for Action intended to push Congress to extend flood insurance for five years. NAR says it will continue to push for a five-year extension before the program again expires in six months through H.R. 1309, a bill previously introduced in the U.S. House.

© 2011 Florida Realtors®

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