The Sacramento Bee reports on distressed borrowers. "It took less than eight months for Dustin Suposs' '"American Dream' to become a nightmare. He and his girlfriend, both in their early 20s, got caught up in the better-buy-now mentality that fueled the Sacramento area's housing market last spring. They bought a $365,000, 1,550-square-foot home in Elk Grove with no money down."

"The result: A $2,300-a-month payment that was more than 2 1/2 times the rent they were paying. By December the couple were drowning in bills and debt. Now they're two months behind on the mortgage. Experts say the pair are part of a new trend, a growing wave of distressed borrowers just beginning to hit Sacramento and across California."

"In December, lenders filed 321 notices of default in Sacramento County, the highest number in nearly three years Already, many working with distressed borrowers see ominous signs that suggest foreclosure activity is picking up fast. 'We're seeing the early indicators that it's only getting worse,' said Pam Canada, of the nonprofit Neighborworks Homeownership Center. 'We're creeping into the dozens of calls per month (from owners behind on their payments), and that's higher than a year ago, when it would have been half a dozen a month.'"

"'Everyone was anticipating getting in (a house) at any cost and then letting appreciation in the market handle it in the next year or two,' said John Arvanitis, in Citrus Heights. 'In theory, that's great if appreciation stays at certain levels, but it's not happening anymore.'"

"Some of today's distressed borrowers have exacerbated their predicament by blowing their credit score or by tapping what little equity they had with a cash-out refinance or a home equity loan. Experts stress that there's always a certain amount of financial distress among homeowners. They expect defaults to rise from today's level even if most people with riskier loans stay out of trouble."

"Regardless of what kind of mortgage they have, Karevoll said, people always lose jobs, get divorced, get ill or injured or simply make bad borrowing decisions. "As grim as it sounds," Karevoll said, 'foreclosure activity has a function: It's kind of the sanitation department of the real estate market.'"

"For now, Suposs and his girlfriend look to have escaped their immediate financial trouble. A relative has agreed to buy their home before they lose it to the lender. 'There were a lot of nights of restless sleeping because they can come get the house,' Suposs said."