TEXT-Fitch downgrades FTA Santander Hipotecario 3

Fri Nov 23, 2012 1:31pm EST

Nov 23 - Fitch Ratings has downgraded five and affirmed three tranches of
FTA, Santander Hipotecario 3, as follows:

Class A1 (ISIN ES0338093000) downgraded to 'Bsf' from 'BBsf'; Outlook Negative
Class A2 (ISIN ES0338093018) downgraded to 'Bsf' from 'BBsf'; Outlook Negative
Class A3 (ISIN ES0338093026) downgraded to 'Bsf' from 'BBsf'; Outlook Negative
Class B (ISIN ES0338093034) downgraded to 'CCCsf' from 'Bsf'; Recovery Estimate
50%
Class C (ISIN ES0338093042) downgraded to 'CCsf' from 'CCCsf'; Recovery Estimate
0%
Class D (ISIN ES0338093059) affirmed at 'CCsf'; Recovery Estimate 0%
Class E (ISIN ES0338093067) affirmed at 'CCsf'; Recovery Estimate 0%
Class F (ISIN ES0338093075) affirmed at 'Csf'; Recovery Estimate 0%

The downgrades of the class A, B and C notes reflect the continued poor credit
performance of the assets. The downgrades of the senior notes are also due to
the interest deferral triggers in this transaction not being breached despite
the adverse performance.

Santander Hipotecario 3 features predominantly higher loan-to-value ratio
residential mortgage loans originated near the peak of the market by Banco
Santander ('BBB+'/Negative/'F2'). The weighted average original loan-to-value
ratio at close was 92.4%.

As a result of the more adverse credit characteristics of the portfolio, the
performance of the transaction to date has been relatively weak, with an
exceptionally high level of defaults observed. As of October 2012, the level of
net cumulative defaults was 9.6% of the current outstanding balance.

The poor credit performance of the underlying assets combined with insufficient
availability of excess spread has led to the depletion of the reserve fund, a
large build-up of unprovisioned defaulted loans. The resulting principal
deficiency ledger balance has reached a level that would represent a loss on a
portion of the class B notes and all those below class B. As of October 2012,
the level of unprovisioned defaults was EUR166m.

To understand the true principal deficiency position of the transaction, in its
analysis, Fitch applied market value declines of up to 50% on the portfolio of
defaulted assets, in line with what has been observed on repossessed properties
associated with Banco Santander originated loans.

Unlike most other Spanish transactions that have experienced severely adverse
performance, this transaction has not breached the interest deferral triggers.
This is partially due to the way the calculation of the gross cumulative default
triggers have been interpreted by the calculation agent. As a result, the more
junior notes are continuing to receive their interest instead of class A
principal being paid down.


Additional information is available on www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Sources of information- in addition to those mentioned in the applicable
criteria, the sources of information used to assess these ratings were Investor
Reports

Applicable criteria, 'Global Structured Finance Rating Criteria' dated 06 June
2012' EMEA Residential Mortgage Loss Criteria' dated 7th June 2012, and 'EMEA
Residential Mortgage Loss Criteria Addendum - Spain dated 24 July 2012
'Counterparty Criteria for Structured Finance Transactions' and 'Counterparty
Criteria for Structured Finance Transactions: Derivative Addendum', dated 30 May
2012 are available at www.fitchratings.com.

Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
EMEA Residential Mortgage Loss Criteria
EMEA Criteria Addendum - Spain - Mortgage and Cashflow Assumptions
Counterparty Criteria for Structured Finance Transactions
Counterparty Criteria for Structured Finance Transactions: Derivative Addendum
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