What happen to mortgage loan that makes market crash

Let's look at an example of a typical mortgage company, call them ABC Mortgage Sdn Bhd.
Let's say on a given day ABC commits to fund $500 million in mortgages (these are examples, but in the ballpark of a typical large lender).
ABC Mortgage Sdn Bhd will not typically hold any of these loans. Instead, they will sell them in the secondary mortgage market

But that takes time. In the meantime, they have to close the loan and give the money to the home seller. They don't usually supply the money from their own coffers. They go out and borrow it. They get loans from lenders to cover that gap. This is known as a "warehouse line." These loans will be repaid once the loans are securitized in the secondary market. They are only short-term.

Here's the problem. The lenders are now saying we will give you the money, but the collateral that you are basing the loans on are worth less, so we will lend you less money than you wanted. On top of that, the loans you have already made may be worth less, so we are asking you to put up more money. This is called a "margin call."
To boot, the people at the other end of the deal--who will buy the loans in the secondary market--are demanding a lower price and a higher yield. The mortgage banker is getting squeezed at both ends.

Look what happens when they try to sell the loan (actually pools of loans) into the secondary mortgage market. Let's look again at that $500 million in loans that ABC Mortgage Sdn Bhd just originated on one day.
Of the $500 million, perhaps $400 million will be "conforming" mortgages that will most likely be sold to KBS or XYZ

The remaining $100 million are "nonconforming" and must be sold into the private market. Who will buy them? Hedge funds, insurance companies, and average investors.
These loans would typically be sold at a profit--so, for example, $100 million in loans would be sold at $101 million ("par plus one" in lending terms) for a $1 million profit.
But now investors are saying they won't take that--they will only buy the $100 million in loans for, say, $95 million. But if that happens, ABC Mortgage Sdn Bhd loses $5 million in value and $1 million in profit. They can only fund the mortgages they have committed to if they make up the $5 million shortfall from their own company. If this happens just one day, it's no problem--but if it happens every day for weeks, and the company thinks this is not going to end for months, the company may have to close its doors or renege on its loan commitments. At the very least, it will have large losses.