Soaring home foreclosure rates in Newton County are having a ripple effect on the county's economy.

Record numbers of county homeowners have seen their homes foreclosed on by banks in recent months when they failed to make their monthly mortgage payments. These foreclosures are having an effect not only on the families put out of their homes, but on the real estate agents, home builders and banks that helped to put them there in the first place.

With four months left in the year, it appears that with 439 foreclosures already, 2007 will break 2006's record for the most foreclosures in a year for the county. In 2006 there were 605 foreclosures in the county according to the Newton County Superior Court Clerk's Office. From 2000 to 2006 Newton County's foreclosure rate increased by an astonishing 465 percent.

Newton County is hardly alone in experiencing high rates of foreclosure though. Neighboring Rockdale County has one of the highest rates of foreclosure in the state (3.5 percent) according to a May report prepared by the Atlanta Regional Commission.

According to real estate Web site realtytrac.com, Metro Atlanta had the twelfth highest rate of foreclosure nationally in August with one foreclosure filing for every 54 households.

Despite this grim news, local real estate agents are optimistic that the market will sort itself out in time and be the stronger for it.

"I think we're going to come out of it. I think we're going to come out better," said Covington broker Geri Murphy, owner of Coldwell Banker Gerri Murphy Realty, Inc. "We don't have the cash flow that we normally had but we're still hanging in there. I still have contracts sitting on my desks, not like they did last year but we still have closings."

Murphy attributed the rise in foreclosures to an inability of many homeowners to meet their subprime loan mortgage payments.

A subprime loan (otherwise known as an adjustable rate mortgage) is a loan made at an initially low interest which rises considerably after one or two years. According to Murphy many of the homeowners facing foreclosures today have taken out subprime loans for close to or at 100 percent of the cost of their home.

According to a Newton County survey by housing and demographic Web-site dataplace.org, an incredible 30.6 percent of home mortgages loans were made by subprime lenders in 2004, resulting in a county ranking of 31 out of 3,204 counties nationally. Rockdale County was ranked 17th nationally for subprime loans with 34.1 percent.

With little money invested in a down payment, Murphy said some homeowners treated their mortgage payments like rent payments, putting off paying the mortgage for several months in favor of paying other bills first.

"If you put money into a house, it seems that you would have more care in taking care of it or making payments," Murphy said. "But if you didn't put anything into it and hit a hard bump, you're more likely to think 'oh what the heck I'll leave it.' The 100 percent loans have gone down the tube so to speak.

"You just got to make your mortgage payments. You pay that first before you pay anything else, even before you go to the grocery store," Murphy said.

But Murphy doesn't blame only the homeowners for the current situation. Real estate agents who encouraged buyers to purchase homes well outside of their price range for the sake of a higher commission are also to blame she says as are the mortgage lenders who knowingly approved buyers with blemished credit for high-risk loans.

These same real estate agents and subprime lenders will be the first to leave the market as it continues to sink further into a housing slump she predicts.

"It's going to be a leveling out process," Murphy said. "They are going to be real estate agents getting out. The ones that have been in the business for a long time are going to hang in there. Real estate agents who are on fringe who have not been working as hard they're going to find another job."

Covington broker Marshall Ginn with Re/Max Agents Realty seconded Murphy's thoughts.

"It is a cycle, it's something that we're going through, weeding out agents and mortgage companies," said Ginn who also serves as the chairman of the Covington/Newton County Chamber of Commerce. "I do believe we needed this correction. The standards and criteria for mortgages were less than what they were 10 to 15 years ago.

Even homeowners who aren't in any danger of having their homes foreclosed on are likely feeling the effects of foreclosure as the market slows down and property values are negatively impacted says Ginn.

"If you really want to sell it you are going to have to price it to sell," advises Murphy. "They are not going to come along and buy something that is overpriced. It is a buyers market."

Home builders, one of the county's fastest growing industries in recent years are also experiencing a downturn as a result of the wave of foreclosures.

"That is a big portion of our slowdown, but I think we were already slowing down prior to that and that has just accelerated or made it a lot worse than it would have been because a lot of our industry was relying on the subprime loans to do business," said Alan Freeman, president of the Newton County Home Builder's Association.

The Newton County Home Builder's Association is a professional trade association representing 125 Newton County builders and approximately 375 members.

Freeman estimated that there is about a year's worth of new homes sitting empty in subdivisions across the county.

"It's just something that we're going to have to buckle down to and find ways to cycle through the inventory that is out on the market right now, Freeman said.

Freeman speculated that between the rising rates of foreclosure and a surplus of new houses on the market, quite a few Newton County builders would soon be put out of business unless the housing market turns around quickly.

"I guess it's all going to depend on how long it goes. There's a lot of them (builders) that are having to shut their doors," Freeman said. "They're managing to get by but I know the banks are having to take back a lot of the houses."

Having been through previous market crunches in the 1980s when interest rates soared to as high as 18 percent, Murphy said she was optimistic that the market would begin recovering by 2008.

"This has happened before. We'll come out of it and we'll come out better," Murphy said. "There'll always be properties to sell because they're will always be people who have needs to buy."

Ginn was equally optimistic that the current downturn of the county's housing market was only a short term setback.

"I don't see it as being very detrimental or the death knell to the good things that Newton County has to offer because people certainly desire to live here and will continue to do so," Ginn said.