The residential mortgage-backed securities market has made solid gains so far this year, with more issuers in the market, better pricing and a greater diversification of securities. But issuers say the market has yet to reach the point where it can be described as a sustainable, cost-effective source of funds.The financial institutions that have issued the more than A$14 billion worth of RMBS this year include two of the big four banks and two foreign banks (Citibank and ING Direct), as well as Bendigo and Adelaide Bank, FirstMac, Resimac, AMP Bank, Community CPS and Heritage Building Society. Issuance is up 30 per cent on the same time last year.Issues have included yen-denominated and fixed rate tranches. Resimac's Bastille Trust was a portfolio of non-conforming loans - only the second such issue since the financial crisis.Pricing of top tranches has been around 100 basis points over the swap rate - about 20 basis points better than a year earlier. The weighted average life of these tranches has moved from under a year to close to three years.The Australian Office of Financial Management has invested about $1 billion so far this year - about half of what it had invested at the same time last year. However, these gains have been offset by higher costs imposed by ratings agencies, which have changed their ratings methodologies. Issuers now have to provide more subordination to avoid downgrades. In addition, the agencies have changed their counter-party criteria for swap transactions. Higher collateral requirements are making deals more expensive.And the industry is now preparing for the implementation of a revised prudential standard for securitisation next year. The Australian Prudential Supervision Authority's new standards may add costs for many issuers.Resimac's head of securitisation, Mary Ploughman, said: "We are doing a little better than before on pricing but it is not yet a sustainable situation."One of Ploughman's concerns is that the bulk of RMBS issuance is going to balance-sheet investors (financial institutions) that want assets for liquidity purposes. Ploughman said: "Balance-sheet investors buy assets they can sell. Real money investors (fund managers) sit on their investments."APRA issued a new securitisation standard, APS 120, in May, and last week wrote to financial institutions asking them to report on their compliance plans. The industry is unhappy that the new standard has an element of retrospectivity; changes will have to be made to outstanding transactions as well as new issues.The revised standard says that where APRA considers the issuer is providing "implicit support" to a securitisation, the regulator may increase the issuer's capital requirement. APRA considers that the acquisition of exposures by an issuer has the potential to undermine the transfer of credit risk and result in implicit support being provided to a securitisation.APRA is also taking a more stringent approach to its treatment of warehouse facilities. The capital requirement for warehouse facilities has been the same as if the assets were on the balance sheet. In future, assets held in a warehouse may attract a capital surcharge.Not everyone is gloomy,