Note 11. Notes Receivable

Notes receivable (net of reserves) related to our vacation ownership loans consist of the following (in millions):


	December 31,
	2012			2011
Vacation ownership loans – securitized	$	503		$	510
Vacation ownership loans – unsecuritized		111			113

		614			623
Less: current portion
Vacation ownership loans – securitized		(65	)		(64	)
Vacation ownership loans – unsecuritized		(19	)		(20	)

	$	530		$	539

We include the current and long-term maturities of unsecuritized VOI notes receivable in accounts receivable and other assets, respectively, in our consolidated balance sheets.

We record interest income associated with VOI notes in our vacation ownership and residential sale and services line item in our consolidated statements of income. Interest income related to our VOI notes receivable was as follows (in millions):


	Year Ended December 31,
	2012		2011		2010
Vacation ownership loans – securitized	$	69	$	64	$	66
Vacation ownership loans – unsecuritized		15		21		21

	$	84	$	85	$	87

The following tables present future maturities of gross VOI notes receivable (in millions) and interest rates:


	Securitized			Unsecuritized			Total
2013	$	74		$	28		$	102
2014		76			11			87
2015		77			12			89
2016		75			12			87
Thereafter		274			96			370

Balance at December 31, 2012	$	576		$	159		$	735

Weighted Average Interest Rates		12.97	%		12.13	%		12.75	%

Range of interest rates		5 to 17	%		6 to 17	%		5 to 17	%

For the vacation ownership and residential segment, we record an estimate of expected uncollectibility on our VOI notes receivable as a reduction of revenue at the time we recognize profit on a timeshare sale. We hold large amounts of homogeneous VOI notes receivable and therefore, assess uncollectibility based on pools of receivables. In estimating loss reserves, we use a technique referred to as static pool analysis, which tracks uncollectible notes for each year’s sales over the life of the respective notes and projects an estimated default rate that is used in the determination of our loan loss reserve requirements. As of December 31, 2012, the average estimated default rate for our pools of receivables was 9.7%.

The activity and balances for our loan loss reserve are as follows (in millions):


	Securitized			Unsecuritized			Total
Balance at December 31, 2009	$	-		$	94		$	94
Provisions for loan losses		14			32			46
Write-offs		-			(52	)		(52	)
Adoption of ASU No. 2009-17		77			(4	)		73
Other		(9	)		9			-

Balance at December 31, 2010		82			79			161
Provisions for loan losses		2			27			29
Write-offs		-			(54	)		(54	)
Other		(4	)		4			-

Balance at December 31, 2011		80			56			136
Provisions for loan losses		-			26			26
Write-offs		-			(41	)		(41	)
Other		(7	)		7			-

Balance at December 31, 2012	$	73		$	48		$	121

We use the origination of the notes by brand (Sheraton, Westin, and Other) as the primary credit quality indicator to calculate the loan loss reserve for the vacation ownership notes, as we believe there is a relationship between the default behavior of borrowers and the brand associated with the vacation ownership property they have acquired. In addition to quantitatively calculating the loan loss reserve based on our static pool analysis, we supplement the process by evaluating certain qualitative data, including the aging of the respective receivables, current default trends by brand and origination year, and the FICO scores of the buyers.

Given the significance of our pools of VOI notes receivable, a change in the projected default rate can have a significant impact to our loan loss reserve requirements, with a 0.1% change estimated to have an impact of approximately $4 million.

We consider a VOI note receivable delinquent when it is more than 30 days outstanding. All delinquent loans are placed on nonaccrual status, and we do not resume interest accrual until payment is made. We consider loans to be in default upon reaching 120 days outstanding, at which point, we generally commence the repossession process. Uncollectible VOI notes receivable are charged off when title to the unit is returned to us. We generally do not modify vacation ownership notes that become delinquent or upon default.

Past due balances of VOI notes receivable by credit quality indicators are as follows (in millions):


	30-59 Days		60-89 Days		>90 Days		Total Past				Total
	Past Due		Past Due		Past Due		Due		Current		Receivables
As of December 31, 2012
Sheraton	$	4	$	3	$	20	$	27	$	331	$	358
Westin		3		2		10		15		334		349
Other		-		-		7		7		21		28

	$	7	$	5	$	37	$	49	$	686	$	735

As of December 31, 2011
Sheraton	$	5	$	3	$	26	$	34	$	321	$	355
Westin		3		2		17		22		345		367
Other		1		1		4		6		31		37

	$	9	$	6	$	47	$	62	$	697	$	759