I went to a finical lenders meeting recently.  I asked a lot of questions to which the following is the results.

So you can have a broker get you financed. This broker packages you (the home buyer) so that a company will fund you.  Sometimes this packaging needs to be reworked in order to get you funded (thus you may show up having multiple applications giving you dings on your credit report).  You can also go to a finical institution that will fund you.  It's my understanding that these institutions can lend you its own money or it can lend investors money.

It was the federal government that wanted more US citizens to be given the opportunity to become homeowners.  It's my understanding that's how the sub prime came about.  The sub prime allowed people to buy homes that would normal not qualifies for funding.  The sub prime mostly used Wall Street investor's monies to fund these loans.  The people that qualified for sub prime funding paid a higher amount on the return monies borrowed.  The amount was more than what an investor would make in other market opportunities.  It started out like a feeding frenzy. 

Now this is were the rub comes into play.  Some of these companies that were lending money were doing so in a very haphazard manner.  But because they were marketing so aggressively they were doing monster (record) numbers (new loans). Most of the powers that be were looking the other way.  That is until a few of the sub prime lenders got too greedy and through miss management went out of business.  Which caused a backlash that directly affected the Wall Street investors.  Now the investors sold anything that said, "sub prime", in doing so it started the decline in the real estate market.  It has also caused a shortage of funds for lenders. 

Now people who should not have been funded were, and those people are trying to sell their homes.  They now owe more than what the current market will bare.   So this creates a new area of the market that has not been seen since the S&L schemes of the early 90's, "short pays".  Now this is were the current homeowner tells the lender that they have had a hardship and need to get out of the loan.  This is just a pre curser to a foreclosure action that's in the near future.  Now the lender that holds the loan wants to approve the new buyers, but because there are so many short pays the lender does not want to look at the sale until it gets closer to the foreclosure date.  This decision is made by a new hire that has been given a 22hr class in this area.  The homeowner is sweating out the ruin of their credit history and will soon be filing for BK.  Now the lender that foreclosed is in the hole.  The lender wants its full face value on its investment.  The lender now puts the home on the market, and because they are in the hole they put last years price on it. 

Everyone (the media) is stating that it's a buyers market but in truth its not.  The new homebuilders have stop building, the foreclosures are too high and the short pays require that the lender park you (buyer) on a shelf for 90 days.  So how is it's a buyers market? There is less money available for funding and the inventory is not at market value.