The non-conforming lender Bluestone Mortgages is budgeting for a reduction of 30 to 40 per cent in its lending volume next year after making an investigation of its ability to raise funds in the credit market.Bluestone chief executive Alistair Jeffery returned from a trip to Singapore at the end of last week, after meeting with a number of the group's long term Asian investors.Jeffery said: "As far as the credit markets are concerned the US and Europe are ground zero. On the buy side investors have been bitten already and they know there is more leverage to be unwound."On the supply side primary issuance is a trickle. There is a huge supply of very cheap paper coming into the market as a result of margin calls and other action being taken by large financial institutions to push securities onto the market."Asia is better because there was less gearing. In the past we have done 40 per cent of our issuance in Asia. We think we will be able to place about 20 per cent of our next deal in Asia."The market dynamics are very different at the moment. The presentations we gave were much more detailed than in the past. We are talking to our investors as if they were stakeholders."We are not sure yet when we will do a deal. When we do it will not be a situation of launching a deal and getting the investors to line up. This is going to be more of a negotiated deal  - more like a private placement."We are working on an agreed position with our warehouse funders and then we will poll investors to see how much appetite they have. "Then we will give our people a budget and make sure they work with the brokers to get a prudent mix of business to get the appropriate return. We expect volume to be down 30 or 40 per cent, LVRs will be lower and settlement times will be longer."We expect these conditions to operate for the next 12 to 18 months. It would be a mistake to think things will return to normal in the first quarter of next year, but we see lenders working with that presumption."Jeffery said being a non-conforming lender was working to his advantage, giving Bluestone a point of difference in the market. He said those facing the hardest task getting deals done would be second tier prime lenders, and they may be forced to reduce their volumes by more than 30 or 40 per cent.Bluestone made an issue of RMBS in March, when it paid 20 basis points over swap for its AAA tranche. Its recent issue, to New Zealand investors, was priced at 70 basis points over for the AAA paper and 92 points over for the total package.Jeffery said: "20 points was an outlier six months ago and 70 points is an outlier now. The long-term average spread for AAA RMBS is about 40 points. But at the moment the market is not