I asked them again for the Life insurance explanation using the phrasing suggested by Shane, but regardless it went to underwriting today. We'll see what the conditions are when it comes back. There are no restrictions on the availability of Cash Value in a paid up Whole life policy it isn't a retirement product. It can be cancelled and all the cash issued, it can be withdrawn and it can be borrowed. There are no tax implications when done properly which is the beauty of whole life for estate/tax planning purposes.
I always thought cash was as good as money 
@DallasLoanGuy wrote:i have seen some programs NOT allow reserves to come from retirement. can be cashed out to use as down payment, but not used as cash reserves.
typically, this is the lower score fhs deals.
they are likely treating this just like a 401k