OMG! Crisis At The Mall

The default rate for commercial mortgages more than doubled to 3.8 percent, from 1.6 percent a year earlier, according to a report from Real Capital Analytics. The total volume of commercial mortgage defaults on banks' balance sheets rose $4.5 billion to a total for $41.7 billion.

Sam Chandan, Real Capital's global chief economist, predicted the commercial default rate would reach 5.1 percent at year-end, and the apartment default rate, 5.3 percent. And that is bad news for the lenders, borrowers and the economy at large.

Moreover, rising commercial defaults will likely reverberate throughout the rest of the economy, Chandan said. Most of the country's regional and community banks hold a significant amount of commercial mortgages on their books, and deteriorating credit quality in this sector will likely cause banks to further tighten lending altogether.

"The challenges in commercial real estate has the potential to spill over into the ability of these banks to lend to small businesses and consumers," Chandan said.