We added the EXCLUDE_NONPAK_UE_EXTENSIONS define during EDL development, mainly for optimization purposes (keep all file IO out of pak file for better IO caching) and also security (don't allow overriding of pak assets with loose files). We then added the loose file whitelist system to allow certain loose files to be read.
Since that code was released, we've had some complaints that this is too restrictive for some people, and that the existing mechanism to disable it (changing the value of that define form a build.cs file) is no good for people with non-source engine installations.
We should improve this system so that it is correctly configurable for all users, whilst still providing the security and file IO optimizations to those that need it.
There's no existing public thread on this issue, so head over to Questions & Answers just mention UE-52439 in the post.