The commercial real estate sector has been identified as the weakest part of the economy, according to the Fed’s Beige Book business survey. The survey shows signs of weakness in the national banking and employment sectors as well. “The Beige Book was more pessimistic than what I expected,” said John Silvia, chief economist at Wells Fargo Securities in Charlotte, N.C. The report indicates that commercial real estate loan defaults totaled $110 billion and may rise to $170 billion by the fourth quarter of 2010. “Declining real estate values caused by rising vacancies, falling rental rates and weak sales are contributing to losses,” John Dugan, Comptroller of the Currency, told Congress Oct. 14. However, the problem of rising commercial real estate loan defaults are a manageable problem for the U.S. banking industry and will not require a government solution, said Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, Va. [Bloomberg]

Amid the housing downturn, reverse mortgages for seniors are becoming increasingly popular. But these mortgages have high fees and require tapping into the mortgage holder’s home equity, which is not recommended for homeowners with any other alternatives, Wall Street Journal reporter Nick Timiraos told CNBC. Also, since home prices are falling, it is likely that home equity amounts are less than reverse mortgage amounts. According to the Federal Housing Administration, therefore, a homeowner would have to have no mortgage at all or a very small mortgage to be eligible for a reverse mortgage. The mortgages already have consumer protection, but John Dugan, controller of the currency, wants reverse mortgages to be more heavily regulated to make the process safer, according to CNBC’s Diana Olick. [more]