Jul. 19--Don't look now, but another big Seattle-based bank is struggling under the weight of distressed mortgage-backed securities, declining loan business and the deflated housing market.

This time it's not a consumer-oriented bank such as Washington Mutual, which collapsed last year, but the Federal Home Loan Bank of Seattle, a behind-the scenes funder of mortgage loans that faces its second major financial crisis in five years.

The Seattle FHLB, a cooperative that lends money to its member banks at below-market rates, has accumulated $247 million in net losses over the past four quarters, mainly because of losses in its pile of mortgage-backed securities.

The bank's $16.2 million first-quarter loss would have been even deeper if not for a timely change in accounting rules.

So far, the bank's troubles haven't affected its ability to make loans to its members. That's especially important to smaller, more rural banks, which generally rely on the nationwide FHLB system more than larger institutions do.

But affordable-housing groups, who've looked to the Seattle FHLB as a key funding source for years, have seen the bank cut its grants nearly in half, to an estimated $2.6 million this year from nearly $4.4 million in 2008.

That will make finding money to build new low-cost housing "very difficult" especially with other sources also cutting back, said Sharon Lee, executive director of the Low Income Housing Institute in Seattle.

The Seattle FHLB's Home$tart program, which helps first-time buyers put together their down payments and meet closing costs, also has been cut this year, to $1.8 million from $3.6 million last year.

And member banks may find the FHLB is a less appealing funding source than it used to be. That could hinder any recovery in local housing markets.

"They have historically been important financial partners but they are not indispensable to us," said Roy Whitehead, CEO of Seattle-based Washington Federal, the Seattle FHLB's third-biggest shareholder.

"Their current problems probably make them less competitive than they've been in the past."

Through a spokeswoman, Seattle FHLB's chief executive, Richard Riccobono, declined to be interviewed for this article.

Though the Seattle FHLB is among the most troubled of the 12 Home Loan Banks, it's hardly the only one facing difficulties. Five others also have suspended cash dividends; five others also posted first-quarter losses.

In a report issued last month, the Federal Housing Finance Agency, which regulates the Home Loan Bank System, called the overall condition of the Seattle FHLB and three other banks in the system "less than satisfactory."

The report said the Seattle FHLB's financial condition was "weakening" and called its governance "unsatisfactory," its operational risk management "weak" and its credit risk "high and increasing."

The upheaval in the banking world is cutting into the Seattle FHLB's lending business:

--WaMu, which accounted for more than a third of the Seattle FHLB's lending business, now is owned by JPMorgan Chase of New York. Chase isn't a member of the regional bank and can't become one, meaning it can't take out any new loans.

--Bank of America, the Seattle bank's second-biggest customer, bought Merrill Lynch, the third-biggest. In March, Merrill Lynch repaid its $2.9 billion in outstanding Seattle FHLB loans and hasn't taken out new ones, suggesting it may withdraw its membership.

--Federal recovery efforts, such as the Temporary Liquidity Guarantee Program, may cut into demand for FHLB loans.