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Even if property values only slipped rather than collapsed, someone selling such a home could still end up having to pay money at closing to settle the mortgage balance. Tax and insurance payments escrow accounts are set up by your lender so that all real estate taxes, property insurance, mortgage insurance, and/or flood insurance can be covered by part of your monthly home mortgage payment. Although some of our favorite memories are of when we were caught outside and got soaking wet.
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Tell the bank why you disagree with their statement. Markets move on emotions, thus no one can really tell what will happen on a day to day basis. Most lenders have these underwriting criteria but they are self regulated and often bend the rules to get these loans approved. Thanks for the help, and keep up the good work.
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