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VACATION OWNERSHIP NOTES RECEIVABLE
 6 Months Ended
Jun. 30, 2020
Receivables [Abstract]  
Vacation ownership notes receivable
6. VACATION OWNERSHIP NOTES RECEIVABLE
The following table shows the composition of our vacation ownership notes receivable balances, net of reserves.
June 30, 2020December 31, 2019
($ in millions)OriginatedAcquiredTotalOriginatedAcquiredTotal
Securitized$1,463  $334  $1,797  $1,378  $372  $1,750  
Non-securitized
Eligible for securitization(1)
34  1  35  155  10  165  
Not eligible for securitization(1)
154  28  182  261  57  318  
Subtotal188  29  217  416  67  483  
$1,651  $363  $2,014  $1,794  $439  $2,233  
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(1)Refer to Footnote 7 “Financial Instruments” for a discussion of eligibility of our vacation ownership notes receivable for securitization.
We reflect interest income associated with vacation ownership notes receivable in our Income Statements in the Financing revenues caption. The following table summarizes interest income associated with vacation ownership notes receivable.
Three Months EndedSix Months Ended
($ in millions)June 30, 2020June 30, 2019June 30, 2020June 30, 2019
Interest income associated with vacation ownership notes receivable — securitized$64  $59  $127  $118  
Interest income associated with vacation ownership notes receivable — non-securitized3  8  9  14  
Total interest income associated with vacation ownership notes receivable$67  $67  $136  $132  
COVID-19 Impact on Vacation Ownership Notes Receivable Reserves
We evaluated our vacation ownership notes receivable reserves in light of the COVID-19 pandemic, using the performance of our vacation ownership notes receivable in response to the 2008/2009 financial crisis as a reference point. Using this information, we increased our estimated default rates by approximately 50 percent for a 15-month period to align with the period over which we experienced increased defaults during the previous recessionary period. As a result, we increased our vacation ownership notes receivable reserves by $52 million in the first quarter of 2020. This was reflected as a $42 million reduction to Sale of vacation ownership products, a $10 million increase in Financing expenses, and a $15 million reduction in Cost of vacation ownership products on our Income Statement for the first half of 2020.
Acquired Vacation Ownership Notes Receivable
As part of the ILG Acquisition, we acquired existing portfolios of vacation ownership notes receivable. At acquisition, we recorded these vacation ownership notes receivable at fair value. Upon adoption of ASU 2016-13 on January 1, 2020, we established a reserve for credit losses and a corresponding increase in the book value of the acquired vacation ownership notes receivable, resulting in no impact to the recorded balance. In addition, we established a noncredit discount of $2 million, which represents the difference between the amortized cost basis and the par value of our acquired vacation ownership notes receivable. The noncredit discount will be amortized to interest expense over the contractual life of the acquired vacation ownership notes receivable and is recorded as Financing expenses on our Income Statements.
The following table summarizes the activity related to our acquired vacation ownership notes receivable reserve.
Acquired Vacation Ownership Notes Receivable Reserve
($ in millions)Non-SecuritizedSecuritizedTotal
Balance at December 31, 2019, as reported$—  $—  $—  
Impact of adoption of ASU 2016-13
29  26  55  
Opening Balance at January 1, 202029  26  55  
Securitizations(1) 1  —  
Write-offs(16) —  (16) 
Recoveries8  —  8  
Increase in vacation ownership notes receivable reserve(1)
8  6  14  
Balance at June 30, 2020$28  $33  $61  
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(1)Increase in vacation ownership notes receivable reserve includes $10 million ($2 million non-securitized and $8 million securitized) attributable to the increased reserve as a result of the COVID-19 pandemic.
The following table shows future contractual principal payments, as well as interest rates, for our non-securitized and securitized acquired vacation ownership notes receivable at June 30, 2020.
Acquired Vacation Ownership Notes Receivable
($ in millions)Non-SecuritizedSecuritizedTotal
2020, remaining$2  $22  $24  
20213  44  47  
20223  44  47  
20233  44  47  
20244  41  45  
Thereafter14  139  153  
Balance at June 30, 2020$29  $334  $363  
Weighted average stated interest rate13.4%13.5%13.4%
Range of stated interest rates
3.0% to 17.9%
6.0% to 15.9%
3.0% to 17.9%
Originated Vacation Ownership Notes Receivable
Originated vacation ownership notes receivable represent vacation ownership notes receivable originated by Legacy-ILG subsequent to the Acquisition Date and all Legacy-MVW vacation ownership notes receivable. The following table shows future principal payments, net of reserves, as well as interest rates, for our originated non-securitized and securitized originated vacation ownership notes receivable at June 30, 2020.
Originated Vacation Ownership Notes Receivable
($ in millions)Non-SecuritizedSecuritizedTotal
2020, remaining$17  $69  $86  
202126  141  167  
202222  145  167  
202318  148  166  
202416  150  166  
Thereafter89  810  899  
Balance at June 30, 2020$188  $1,463  $1,651  
Weighted average stated interest rate12.1%12.7%12.6%
Range of stated interest rates
0.0% to 18.0%
0.0% to 17.5%
0.0% to 18.0%
For originated vacation ownership notes receivable, we record the difference between the vacation ownership note receivable and the variable consideration included in the transaction price for the sale of the related vacation ownership product as a reserve on our vacation ownership notes receivable.
The following table summarizes the activity related to our originated vacation ownership notes receivable reserve.
Originated Vacation Ownership Notes Receivable Reserve
($ in millions)Non-SecuritizedSecuritizedTotal
Balance at December 31, 2019$90  $114  $204  
Increase in vacation ownership notes receivable reserve(1)
41  40  81  
Securitizations(33) 33  —  
Write-offs(25) —  (25) 
Defaulted vacation ownership notes receivable repurchase activity(2)
37  (37) —  
Balance at June 30, 2020$110  $150  $260  
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(1)Increase in vacation ownership notes receivable reserve includes $42 million ($16 million non-securitized and $26 million securitized) attributable to the increased reserve as a result of the COVID-19 pandemic.
(2)Decrease in securitized vacation ownership notes receivable reserve and increase in non-securitized vacation ownership notes receivable reserve were attributable to the transfer of the reserve when we voluntarily repurchased defaulted securitized vacation ownership notes receivable.
Credit Quality of Vacation Ownership Notes Receivable
Legacy-MVW Vacation Ownership Notes Receivable
For both Legacy-MVW non-securitized and securitized vacation ownership notes receivable, we estimated average remaining default rates of 8.22 percent as of June 30, 2020 (includes 1.51 percent attributed to the additional expected defaults as a result of the COVID-19 pandemic), and 7.04 percent as of December 31, 2019. A 0.5 percentage point increase in the estimated default rate would have resulted in an increase in the related vacation ownership notes receivable reserve of $7 million as of June 30, 2020, and $8 million as of December 31, 2019.
The following table shows our recorded investment in non-accrual Legacy-MVW vacation ownership notes receivable, which are vacation ownership notes receivable that are 90 days or more past due.
Legacy-MVW Vacation Ownership Notes Receivable
($ in millions)Non-SecuritizedSecuritizedTotal
Investment in vacation ownership notes receivable on non-accrual status at June 30, 2020$62  $19  $81  
Investment in vacation ownership notes receivable on non-accrual status at December 31, 2019$43  $11  $54  
The following table shows the aging of the recorded investment in principal, before reserves, in Legacy-MVW vacation ownership notes receivable as of June 30, 2020.
Legacy-MVW Vacation Ownership Notes Receivable
($ in millions)Non-SecuritizedSecuritizedTotal
31 – 90 days past due$7  $34  $41  
91 – 150 days past due6  19  25  
Greater than 150 days past due56  —  56  
Total past due69  53  122  
Current137  1,222  1,359  
Total vacation ownership notes receivable$206  $1,275  $1,481  
The following table shows the aging of the recorded investment in principal, before reserves, in Legacy-MVW vacation ownership notes receivable as of December 31, 2019.
Legacy-MVW Vacation Ownership Notes Receivable
($ in millions)Non-SecuritizedSecuritizedTotal
31 – 90 days past due$7  $33  $40  
91 – 150 days past due4  11  15  
Greater than 150 days past due39  —  39  
Total past due50  44  94  
Current222  1,254  1,476  
Total vacation ownership notes receivable$272  $1,298  $1,570  
The following table details the origination year of our Legacy-MVW vacation ownership notes receivable as of June 30, 2020.
Legacy-MVW Vacation Ownership Notes Receivable
($ in millions)Non-SecuritizedSecuritizedTotal
Year of Origination
2020$53  $79  $132  
201963  456  519  
201837  317  354  
201716  186  202  
20169  87  96  
2015 and Prior28  150  178  
$206  $1,275  $1,481  
Legacy-ILG Vacation Ownership Notes Receivable
At June 30, 2020 and December 31, 2019, the weighted average FICO score within our consolidated Legacy-ILG vacation ownership notes receivable pools was 709 and 712, respectively, based upon the outstanding vacation ownership notes receivable balance at time of origination. The average estimated rate for all future defaults for our Legacy-ILG consolidated outstanding pool of vacation ownership notes receivable was 17.07 percent as of June 30, 2020 (includes 2.89 percent attributed to additional expected defaults as a result of the COVID-19 pandemic) and 12.65 percent as of December 31, 2019. A 0.5 percentage point increase in the estimated default rate on the Legacy-ILG originated vacation ownership notes receivable would have resulted in an increase in the related vacation ownership notes receivable reserve of $3 million as of June 30, 2020, and $2 million as of December 31, 2019.
The following table shows our recorded investment in non-accrual Legacy-ILG vacation ownership notes receivable, which are vacation ownership notes receivable that are 90 days or more past due.
Legacy-ILG Vacation Ownership Notes Receivable
($ in millions)Non-SecuritizedSecuritizedTotal
Investment in vacation ownership notes receivable on non-accrual status at June 30, 2020$68  $17  $85  
Investment in vacation ownership notes receivable on non-accrual status at December 31, 2019$40  $9  $49  
The following table shows the aging of the recorded investment in principal, before reserves, in Legacy-ILG vacation ownership notes receivable as of June 30, 2020.
Legacy-ILG Vacation Ownership Notes Receivable
($ in millions)Non-SecuritizedSecuritizedTotal
31 – 90 days past due$8  $25  $33  
91 – 120 days past due4  9  13  
Greater than 120 days past due64  8  72  
Total past due76  42  118  
Current73  663  736  
Total vacation ownership notes receivable$149  $705  $854  
The following table shows the aging of the recorded investment in principal, before reserves, in Legacy-ILG vacation ownership notes receivable as of December 31, 2019.
Legacy-ILG Vacation Ownership Notes Receivable
($ in millions)Non-SecuritizedSecuritizedTotal
31 – 90 days past due$11  $18  $29  
91 – 120 days past due3  6  9  
Greater than 120 days past due37  3  40  
Total past due51  27  78  
Current250  539  789  
Total vacation ownership notes receivable$301  $566  $867  
The following tables show the Legacy-ILG acquired vacation ownership notes receivable by brand and FICO score, before reserves. Vacation ownership notes receivable with no FICO score primarily relate to non-U.S. resident borrowers.
Acquired Vacation Ownership Notes Receivable as of June 30, 2020
($ in millions)700 +600 - 699< 600No ScoreTotal
Westin$98  $55  $4  $13  $170  
Sheraton92  82  15  35  224  
Hyatt14  10  1  —  25  
Other3  1  —  2  6  
$207  $148  $20  $50  $425  

Acquired Vacation Ownership Notes Receivable as of December 31, 2019
($ in millions)700 +600 - 699< 600No ScoreTotal
Westin$103  $57  $4  $13  $177  
Sheraton95  83  15  37  230  
Hyatt15  10  1  —  26  
Other3  1  —  2  6  
$216  $151  $20  $52  $439  
The following table details the origination year of our Legacy-ILG acquired vacation ownership notes receivable by brand and FICO score as of June 30, 2020. Vacation ownership notes receivable with no FICO score primarily relate to non-U.S. resident borrowers.
Acquired Vacation Ownership Notes Receivable - Westin
($ in millions)202020192018201720162015 & PriorTotal
700 +$—  $—  $27  $26  $16  $29  $98  
600 - 699—  —  12  14  11  18  55  
< 600—  —  3  1  —  —  4  
No Score—  —  3  3  2  5  13  
$—  $—  $45  $44  $29  $52  $170  

Acquired Vacation Ownership Notes Receivable - Sheraton
($ in millions)202020192018201720162015 & PriorTotal
700 +$—  $—  $26  $25  $16  $25  $92  
600 - 699—  —  21  21  14  26  82  
< 600—  —  9  3  1  2  15  
No Score—  —  9  10  6  10  35  
$—  $—  $65  $59  $37  $63  $224  

Acquired Vacation Ownership Notes Receivable - Hyatt and Other
($ in millions)202020192018201720162015 & PriorTotal
700 +$—  $—  $3  $4  $3  $7  $17  
600 - 699—  —  2  2  2  5  11  
< 600—  —  1  —  —  —  1  
No Score—  —  —  —  —  2  2  
$—  $—  $6  $6  $5  $14  $31  
The following tables show the Legacy-ILG originated vacation ownership notes receivable by brand and FICO score, before reserves. Vacation ownership notes receivable with no FICO score primarily relate to non-U.S. resident borrowers.
Originated Vacation Ownership Notes Receivable as of June 30, 2020
($ in millions)700 +600 - 699< 600No ScoreTotal
Westin$110  $50  $6  $20  $186  
Sheraton97  67  14  43  221  
Hyatt15  7  —  —  22  
$222  $124  $20  $63  $429  

Originated Vacation Ownership Notes Receivable as of December 31, 2019
($ in millions)700 +600 - 699< 600No ScoreTotal
Westin$122  $46  $5  $25  $198  
Sheraton97  61  13  37  208  
Hyatt16  6  —  —  22  
$235  $113  $18  $62  $428  
The following tables detail the origination year of our Legacy-ILG originated vacation ownership notes receivable by brand and FICO score as of June 30, 2020. Vacation ownership notes receivable with no FICO score primarily relate to non-U.S. resident borrowers.
Originated Vacation Ownership Notes Receivable - Westin
($ in millions)202020192018201720162015 & PriorTotal
700 +$22  $72  $16  $—  $—  $—  $110  
600 - 6997  35  8  —  —  —  50  
< 6001  4  1  —  —  —  6  
No Score6  12  2  —  —  —  20  
$36  $123  $27  $—  $—  $—  $186  

Originated Vacation Ownership Notes Receivable - Sheraton
($ in millions)202020192018201720162015 & PriorTotal
700 +$12  $67  $18  $—  $—  $—  $97  
600 - 6998  46  13  —  —  —  67  
< 6002  10  2  —  —  —  14  
No Score9  28  6  —  —  —  43  
$31  $151  $39  $—  $—  $—  $221  

Originated Vacation Ownership Notes Receivable - Hyatt
($ in millions)202020192018201720162015 & PriorTotal
700 +$3  $10  $2  $—  $—  $—  $15  
600 - 6991  4  2  —  —  —  7  
< 600—  —  —  —  —  —  —  
No Score—  —  —  —  —  —  —  
$4  $14  $4  $—  $—  $—  $22