Traditionally, REO properties aren't exactly the sort of thing most buyers would call their dream home; lower-priced properties, often in run-down neighborhoods, or in some state of disrepair, aren't usually the sort thing that appeals to more affluent real estate buyers. But that was before the housing bust. Now, media stories are beginning to provide anecdotal evidence that the real-estate owned marketplace has become upwardly-mobile, with many local markets -- even those outside of typically distressed neighborhoods -- regularly including many higher-end properties that were once among the exception to the REO rule. The Washington Post, for example, ran a story recently about luxury foreclosures in Northern Virginia and Maryland, noting that in Virginia's Loudon County alone, 60 houses priced over $750,000 were among the 932 foreclosures and short sales listed as available for sale in the county. But that sort of evidence is mostly anecdotal: one county here, one county there -- hardly enough to discern a national trend. We wanted to know: has REO gone jumbo? The numbers have it To find out, we enlisted the help of Denver-based Integrated Asset Services LLC, a 230-person company that handles asset disposition nationwide for many of the nation's largest financial institutions. The folks at IAS dug into their national database of sold REO properties and pulled together for Housing Wire an exclusive look at REO sales by state where the sales price was recorded above the $417,000 limit (most REO properties are listed and sold at prices well below this level). What the numbers show is clear evidence that the foreclosure mess -- and, by extension, the build-up of REO -- is clearly moving up the real estate food chain. In April of 2007, for example, just 27 REO properties above the traditional conforming limit were sold nationwide; in April 2008, that number had mushroomed to an astonishing 173 properties. (We should note that these numbers refer to REOs actually sold during the month, and don't include the countless many more properties still sitting -- unsold -- in inventory.) And it's not the just number of jumbo-priced properties that are swelling in REO, either; expansion is taking place geographically, as well. Last April, 11 states recorded at least one REO property sale above the conforming limit; in April of 2008, that count had reached twenty states. The lion's share, not surprisingly, were in California -- the Golden State, hit hard by the market downturn, saw 102 REOs sell for more than $417,000 during April, compared to just 13 such sales in April 2007. A blind comparison of the firm's clients, whose names were not disclosed to us, further shows that the increase in jumbo REOs sold is a widespread phenomenon. One client saw the number of jumbo REOs sold in April jump more than 12 fold in one year; another saw an increase of 10.5 times versus year-ago sales volume. No client saw a jump in jumbo REO sales volume of under 50 percent, comparing April 2007 to April 2008. For lenders, a growing glut of high-end REO can particularly problematic, according to IAS CEO David McCarthy. "The carry cost is so much greater," he said. Carry cost typically refers to the amount of money needed to "carry" an asset on the lender's books, and includes accrued taxes, property maintenance, and the like; traditional cost of carry can run roughly 2.5 percent of a property's value. The result, McCarthy said, is that many servicers and their investors are placing extra attention on the valuation of higher-end properties, in an effort to make sure that they can sell more quickly and keep loss severity as low as possible. "I think many are taking a closer look at the prices they get, and are spending more time to estimate value" in those markets that have been hit the hardest, McCarthy suggested. In part, the push to ensure accurate valuation is a reflection of the carrying cost and the desire to limit loss; it's also a reflection of the fact that more consumers are now looking at REOs as a potential investment, given the higher price points involved. And given that most experts expect the housing market to get worse before it gets better, despite the growth in so-called jumbo REOs already, most experts believe that the number of higher-priced bank-owned properties will only increase throughout the rest of this year. "We're just now seeing Alt-A and prime delinquencies begin their climb," said one source, an MBS analyst who asked not to be named. "That means a whole lot of deluxe REO is on its way."