It sounds like individual buyers could use a service that purchases homes in cash for them and then handles financing. I also wonder if a wholesale buying club would be viable in these markets.
Even if there were a service that was "for the people" and bought homes for cash, the property would still have to be fixed up. If the buyer was OK with a fixer up property AS IS it is hard for the Investor to sit on that financing, they can't wait for 30 years to get paid. They'd have to sell the note - and who is going to buy it? Certainly not Fannie/Freddie depending on how "bad" the place is according to their standards. It's just not economically viable to have all that money in play even if the interest rate is higher.