Sept. 4 (Bloomberg) -- Subprime mortgage bond losses are likely to total as much as $550 billion, or about half the value of all first-mortgage subprime debt issued in the past three years, Standard & Poor's Chief Credit Officer Mark Adelson said.

Banks and brokerages have already written down $508.5 billion in holdings, according to Bloomberg data, and Adelson's estimate may be a sign that much of the damage to bondholders from the credit crisis has been accounted for.

``There's a lot of double counting involved because most of that paper is held by CDOs,'' said Adelson in an interview.

Adelson said this distinction has been blurred by using the term ``subprime securities'' to refer indiscriminately to both structured-finance collateralized debt obligations and first-lien subprime mortgage asset-backed securities. While many top-rated parts of the CDOs may default, only a few AAA asset-backed securities will, Adelson said.

About $200 billion in losses come directly from defaults on subprime bonds, almost all of it in debt rated below AAA, S&P's top rating, Adelson said. Between $200 billion and $300 billion of the losses stem from CDOs, including top-rated parts of those structured debt securities backed by other bonds, Adelson said.

The remaining $50 billion in losses come from second-lien subprime debt, also known as a second mortgage or home-equity line of credit.

Hedge Fund Pockets

``Hindsight reveals that they created securities that were vulnerable to rapid and severe deterioration far beyond what market participants had anticipated,'' Adelson said in the report published today by S&P.

The billions of dollars bet on credit-default swaps, or derivative contracts used to speculate on or hedge subprime mortgage bonds, don't affect the larger view of the market, Adelson says.

``I don't if some bank money ends up in the pocket of a hedge fund,'' Adelson said. ``You can't lose the same dollar more than once.''

To contact the reporter on this story: Mark Pittman in New York at mpittman@bloomberg.net;

Last Updated: September 4, 2008 14:48 EDT