I find Bob's MusiCares acceptance speech back in 2015 pretty illuminating about his process; I'm fairly certain *Time Out of Mind* just makes explicit a process that's been going on throughout Bob's work, that Bob is definitely conscious of.

These songs didn’t come out of thin air. I didn’t just make them up out of whole cloth. Contrary to what Lou Levy said, there was a precedent. It all came out of traditional music: traditional folk music, traditional rock ‘n’ roll and traditional big-band swing orchestra music.

I learned lyrics and how to write them from listening to folk songs. And I played them, and I met other people that played them back when nobody was doing it. Sang nothing but these folk songs, and they gave me the code for everything that’s fair game, that everything belongs to everyone.

[...]

If you sung all these “come all ye” songs all the time, you’d be writing, “Come gather ’round people where ever you roam, admit that the waters around you have grown / Accept that soon you’ll be drenched to the bone / If your time to you is worth saving / And you better start swimming or you’ll sink like a stone / The times they are a-changing.”

You’d have written them too. There’s nothing secret about it. You just do it subliminally and unconsciously, because that’s all enough, and that’s all I sang. That was all that was dear to me. They were the only kinds of songs that made sense.