Bluestone Group will stop distributing reverse mortgages through brokers and financial planners and will focus its activities on distribution through alliance partners.Bluestone chief executive Peter McGuinness said the group had alliances with Westpac in Australia and New Zealand and also with about 20 credit unions operating under the umbrella of the credit union service provider Cuscal.These alliances account for 30 to 40 per cent of reverse mortgage business in Australia and about 50 per cent in New Zealand.McGuinness said: "Our cost of funds makes it hard to defend the product in the broker channel. The economies are different without alliance partners."The $2 billion reverse mortgage market has hit the wall this year after a couple of years of strong growth. According to Trowbridge Deloitte, there were $466 million of reverse mortgage settlements in 2007.In April the reverse mortgage specialist Australian Seniors Finance wrote to mortgage brokers to inform them that it planned to stop taking applications for new loans. That decision took effect on April 28.ASF said it would continue to meet obligations to existing customers and that it would continue to sell loans through its direct distribution channel and through its partnership arrangements with a number of credit unions.ASF managing director, John Thomas, said the company was pulling back but not getting out of the market. He said he hoped the measures affecting broker sales would be temporary.Resi Mortgage Corp withdrew its reverse mortgage from the market earlier this year. Resi sold a Macquarie Bank loan re-branded as Seniors Equity Advantage.Macquarie Bank announced in March that it was cutting back on its mortgage lending activity. At the time of the announcement no reference was made to its reverse mortgage, Silver Living, but upon inquiry a spokesperson said the product was still on the market but under review.Uncertainty about the near-term viability of the sector means that relationships between lenders and their funders have become very important.McGuinness said Bluestone had a committed funding agreement with its funder Barclays, which meant that Barclays would honour commitments to borrowers who had set up their loans with ongoing drawdown arrangements.McGuiness said it was his understanding that not all lenders offered committed funding.Bluestone retrenched about half the staff in its reverse mortgage operation on Friday. McGuinness said the distribution machinery was still in place and he hoped Bluestone would be able to work with brokers and planners again, once the funding situation eased.In March Bluestone told business partners that it would "materially reduce" origination levels of its non-conforming loans and suspend commercial loan originations in Australia and New Zealand.The group is pursuing a strategy of becoming a specialist loan processor and servicer.