OREANDA-NEWS. October 06, 2015.  Fitch Ratings has affirmed FTA, Santander Hipotecario 3, as follows:

Class A1 (ISIN ES0338093000) affirmed at 'CCCsf'; Recovery Estimate 90%
Class A2 (ISIN ES0338093018) affirmed at 'CCCsf'; Recovery Estimate 90%
Class A3 (ISIN ES0338093026) affirmed at 'CCCsf'; Recovery Estimate 90%
Class B (ISIN ES0338093034) affirmed at 'CCsf'; Recovery Estimate 0%
Class C (ISIN ES0338093042) affirmed at 'CCsf'; 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 prime RMBS transaction was originated and is serviced by Banco Santander (A-/Stable/F2).

KEY RATING DRIVERS
Improved Asset Performance
Over the past 12 months, the performance of the underlying portfolio has improved as the proportion of late stage arrears, defined as loans with three or more monthly instalments overdue, halved to 1.2% of the current pool. Meanwhile, the volume of cumulative written-off loans, defined as loans with at least 18 monthly payments overdue or where the borrower is deemed in a permanent distressed situation, increased by only 50 bp to 7.6% of the initial pool. In Fitch's opinion, the improving performance is mainly driven by the better economic conditions, as evidenced also in the Fitch's 3M+ arrears index, which currently stands at 1.4% from 1.9% in August 2014.

High Sale Discount
Data on sold repossessions suggests that the average discount applied to properties reached roughly 61% of the original valuation. Fitch factored this information into its recovery expectation.

In Fitch's view, the large sale discount on repossessed properties combined with the current average loan-to-value ratio (unindexed LTV equal to 70% and indexed LTV equal to 90%) implies limited income from repossession activity and high losses.

Reducing Deficiency Ledger
The combination of lower period defaults and adequate excess spread helped to reduce the principal deficiency ledger (PDL) to about 186.9m from its peak at 195.2m in July 2014.

Given the large outstanding PDL, Fitch believes that the repayment of the notes is strongly reliant on the available excess spread and income from sold properties, which are likely to be affected by high losses. This is reflected by the 'CCCsf' and 'CCsf' ratings on the senior notes and the rest of the capital structure.

RATING SENSITIVITIES
Recovery income lower than Fitch's stresses would trigger negative rating action.

DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

Fitch did not undertake a review of the information provided about the underlying asset pools ahead of the transactions' initial closing. The subsequent performance of the transactions over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.

Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION
The information below was used in the analysis.
-Loan-by-loan data provided by European Data Warehouse as of 10 July 2015
-Transaction reporting provided by Banco Santander as of 18 July 2015.