Fishin, that has not been my experience dealing with bank mortgages. Underwriting has long lists of requirements that the property must comply with before they will agree to fund the loan. Examples include working appliances, a heating source, running water/adequate well flow rates, functional plumbing, a connection to a sewer system or functional sewage tank and leach field, a functional roof, grounded outlets, GFI outlets in the bathroom and kitchen, and on and on. Deficiency of even one item on the list is enough to prevent a mortgage from being granted.
In the event you are talking about someone who is applying for a loan to purchase a home to move into, where this home will be the only collateral against the loan, I don't doubt that you are correct.
What you have to consider, is that many folks have significantly more assets than this home they are wanting to get a loan on.
Say for instance I make the deal to purchase the home in question for $400,000, 20% down, borrow $320,000. Then after appraisal, it is determined there are many things wrong and it only appraises for $200,000. So long as I have other personal assets that I am willing to pledge as collateral, such as another paid off $400,000 property, I should be able to get this loan no problem. These type of loans happen every day.