Note 10. Vacation Ownership Notes Receivable

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


	December 31,
	2013			2012
Vacation ownership loans – securitized	$	369		$	503
Vacation ownership loans – unsecuritized		247			111

		616			614
Less: current portion
Vacation ownership loans – securitized		(54	)		(65	)
Vacation ownership loans – unsecuritized		(30	)		(19	)

	$	532		$	530

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,
	2013		2012		2011
Vacation ownership loans – securitized	$	63	$	69	$	64
Vacation ownership loans – unsecuritized		21		15		21

	$	84	$	84	$	85

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


	Securitized			Unsecuritized			Total
2014	$	60		$	38		$	98
2015		60			25			85
2016		61			24			85
2017		57			27			84
Thereafter		174			193			367

Balance at December 31, 2013	$	412		$	307		$	719

Weighted average interest rates		12.97	%		12.84	%		12.91	%

Range of interest rates		5 to 17	%		5 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, 2013 and 2012, the average estimated default rate for our pools of receivables was 9.3% and 9.7%, respectively.

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


	Securitized			Unsecuritized			Total
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
Provisions for loan losses		(10	)		21			11
Write-offs		—			(29	)		(29	)
Other		(20	)		20			—

Balance at December 31, 2013	$	43		$	60		$	103

We use the origination of the notes by brand (Sheraton, Westin, and Other) and the FICO scores of the buyers as the primary credit quality indicators 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, supplemented by the FICO scores of the buyers. 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 and current default trends by brand and origination year.

During the year ended December 31, 2013, we recorded a net adjustment to the loan loss reserves of $11 million. This net adjustment was primarily driven by a $23 million increase in the reserves for new contract sales, partially offset by a $12 million favorable adjustment from improved performance in the portfolio, as well as an enhancement to our static pool methodology to include FICO as a credit quality indicator.

Balances of our VOI notes receivable by brand and by FICO score were as follows (in millions):


	As of December 31, 2013
	700+		600-699		<600		No Score		Total
Sheraton	$	156	$	130	$	19	$	59	$	364
Westin		199		91		7		37		334
Other		11		3		—		7		21

	$	366	$	224	$	26	$	103	$	719


	As of December 31, 2012
	700+		600-699		<600		No Score		Total
Sheraton	$	153	$	123	$	23	$	59	$	358
Westin		208		91		8		42		349
Other		16		4		—		8		28

	$	377	$	218	$	31	$	109	$	735

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. Delinquent notes receivable amounted to $48 million and $49 million as of December 31, 2013 and 2012, respectively. 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 were as follows (in millions):


	Total Receivables		Current		Delinquent
					30-59 Days		60-89 Days		>90 Days		Total
As of December 31, 2013	$	719	$	671	$	9	$	5	$	34	$	48
As of December 31, 2012	$	735	$	686	$	7	$	5	$	37	$	49