Most people do not recognize a check valve when they first go looking for one. Take a picture of the water pipe going into the hot water tank at the bottom, and then take a picture of the outlet at the top.
When you compare the two, you will likely notice that in the top there is a very small threaded addition, only about 3/4 of an inch long, at the top.
That is the check valve. Because you have flow on bypass, it's not the faucet. It's a frozen check valve as Old Biscuit says.
Mike
2012 Winnebago Impulse Silver 26QP
2005 16.6 Double Eagle
2018 Jeep Wrangler JK
previously Snowbird Campers,
Triple E Motorhome and Fifth Wheel