When applying for a mortgage, whether you fall into the conforming or sub-prime lending criteria, many lenders require that you at least state, and may even ask you to verify reserves and assets held in liquid accounts.
Reserve and asset accounts like IRS'S, 401K and other accounts that will apply a penalty for early withdrawl are usually taken at a value of 70%. The 30% penalty takes into account the early withdrawl fees you would have to pay in order to receive the money from the reserve/asset account.
For certain types of loans, sometimes a certain amount of reserves are required. Reserves are liquid assets that you have in some type of account. They can be a in a 401k, IRA, Checking/Savings account, Mutual Funds, Money Market Account, stocks, bonds, etc... For example many lenders that offer 100% financing will require a borrower to have 2 months reserves in order to qualify for the loan. 1 month reserves is equal to your Principal, Interest, Taxes and Insurance Monthly Mortgage Payment.
The more risky the loan is for the lender the more reserves they may require. For example with most 100% financing programs for investment properties lenders require a minimum of 6 months worth of reserves and often as much as 12 months of reserves.
Often there is a "seasoning" requirement on these reserves. For example, if you need 2 months' reserves, and you go out and put the money in a bank that day, it may not be accepted by the lender. The funds must be "seasoned" in your account for at least a few months. There are also lenders who do not require the money to be seasoned. Check with your loan officer to find out all your options.
One reason why the lender requires assets and reserves is due to normal life events. Those events would be, lack of income due to illness, accidents, etc. When then normal life events happens and the home owner has reserves and assets then they are able to continue to pay their normal monthly bills without undue hardship.
Substantial Liquid Assets, including cash in checking or savings accounts, certificates of deposit, accessible qualified & unqualified retirement accounts, and exchange traded securities may be utilized as collateral or debt service reserves for your mortgage.