So the discontinuation of a mortgage bank would have a knock-on effect on the rest of the financial system. At the same time, the sector concentration is so high that much of its lending capacity would vanish if any one institution ceases to exist.
If an acceptable resolution scheme for failing SIFIs is not put into place, everyone will expect the government to save them. Mortgage banks operate under an implied government guarantee as long as they are exempt from bail-in and MREL. When owners and creditors believe that an institution will be saved by the government, they will assume greater risks than otherwise.