Quarterly report pursuant to Section 13 or 15(d)

Vacation Ownership Contract Receivables

v3.21.2
Vacation Ownership Contract Receivables
9 Months Ended
Sep. 30, 2021
Vacation Ownership Contract Receivables [Abstract]  
Vacation Ownership Contract Receivables Vacation Ownership Contract Receivables
The Company generates vacation ownership contract receivables (“VOCRs”) by extending financing to the purchasers of its VOIs. Vacation ownership contract receivables, net consisted of (in millions):
September 30,
2021
December 31,
2020
Vacation ownership contract receivables:
Securitized (a)
$ 2,136  $ 2,458 
Non-securitized (b)
721  717 
Vacation ownership contract receivables, gross 2,857  3,175 
Less: Allowance for loan losses 565  693 
Vacation ownership contract receivables, net $ 2,292  $ 2,482 
(a)Excludes $17 million and $23 million of accrued interest on securitized VOCRs as of September 30, 2021 and December 31, 2020, which are included in Trade receivables, net on the Condensed Consolidated Balance Sheets.
(b)Excludes $5 million and $9 million of accrued interest on non-securitized VOCRs as of September 30, 2021 and December 31, 2020, which are included in Trade receivables, net on the Condensed Consolidated Balance Sheets.

During the three and nine months ended September 30, 2021, the Company’s securitized VOCRs generated interest income of $76 million and $232 million. During the three and nine months ended September 30, 2020, the Company’s securitized VOCRs generated interest income of $92 million and $303 million. Such interest income is included within Consumer financing revenue on the Condensed Consolidated Statements of Income/(Loss).
During the nine months ended September 30, 2021 and 2020, the Company originated VOCRs of $544 million and $338 million, and received principal collections of $604 million and $543 million. The weighted average interest rate on outstanding VOCRs was 14.5% and 14.4% as of September 30, 2021 and December 31, 2020.

The activity in the allowance for loan losses on VOCRs was as follows (in millions):
Amount
Allowance for loan losses as of December 31, 2020 $ 693 
Provision for loan losses, net 120 
Contract receivables write-offs, net (248)
Allowance for loan losses as of September 30, 2021 $ 565 
Amount
Allowance for loan losses as of December 31, 2019 $ 747 
Provision for loan losses, net 391 
Contract receivables write-offs, net (350)
Allowance for loan losses as of September 30, 2020 $ 788 

Due to the economic downturn resulting from COVID-19 during the first quarter of 2020, the Company evaluated the potential impact of COVID-19 on its owners’ ability to repay their contract receivables and as a result of current and projected unemployment rates at that time, the Company recorded a COVID-19 related allowance for loan losses. This allowance consisted of a $225 million COVID-19 related provision, which was reflected as a reduction to Vacation ownership interest sales and $55 million of estimated recoveries, which were reflected as a reduction to Cost/(recovery) of vacation ownership interests on the Condensed Consolidated Statements of Income/(Loss). During 2021, the Company analyzed the adequacy of the COVID-19 related allowance consistent with past methodology, and due to improvement in net new defaults the Company reduced the allowance resulting in a $21 million and $47 million increase to Vacation ownership interest sales and a corresponding $8 million and $17 million increase to Cost/(recovery) of vacation ownership interests during the three and nine months ended September 30, 2021 on the Condensed Consolidated Statements of Income/(Loss).

Estimating the amount of the COVID-19 related allowance involves the use of significant estimates and assumptions. Management based its estimates upon historical data on the relationship between unemployment rates and net new defaults observed during the most recent recession in 2008. Specifically, historical data indicated that net new defaults did not return to prior levels until 15-20 months after the peak in unemployment. As of September 30, 2021, given the significant amount of government assistance provided to consumers during the pandemic, the Company estimated default rates would remain elevated for approximately six months as these programs expire. The Company will continue to monitor this allowance as more information becomes available.

The Company recorded net provisions for loan losses of $49 million and $120 million as a reduction of net revenues during the three and nine months ended September 30, 2021, and $45 million and $391 million for the three and nine months ended September 30, 2020, inclusive of the aforementioned COVID-19 related adjustments.

Credit Quality for Financed Receivables and the Allowance for Credit Losses
The basis of the differentiation within the identified class of financed VOI contract receivables is the consumer’s Fair Isaac Corporation (“FICO”) score. A FICO score is a branded version of a consumer credit score widely used within the U.S. by the largest banks and lending institutions. FICO scores range from 300 to 850 and are calculated based on information obtained from one or more of the three major U.S. credit reporting agencies that compile and report on a consumer’s credit history. The Company updates its records for all active VOI contract receivables with a balance due on a rolling monthly basis to ensure that all VOI contract receivables are scored at least every six months. The Company groups all VOI contract receivables into five different categories: FICO scores ranging from 700 to 850, from 600 to 699, below 600, no score (primarily comprised of consumers for whom a score is not readily available, including consumers declining access to FICO scores and non-U.S. residents), and Asia Pacific (comprised of receivables in the Company’s Vacation Ownership Asia Pacific business for which scores are not readily available).
The following table details an aging analysis of financing receivables using the most recently updated FICO scores, based on the policy described above (in millions):
As of September 30, 2021
700+ 600-699 <600 No Score Asia Pacific Total
Current $ 1,639  $ 756  $ 108  $ 75  $ 176  $ 2,754 
31 - 60 days 16  20  10  49 
61 - 90 days 11  27 
91 - 120 days —  27 
Total (a)
$ 1,671  $ 796  $ 133  $ 79  $ 178  $ 2,857 
As of December 31, 2020
700+ 600-699 <600 No Score Asia Pacific Total
Current $ 1,706  $ 835  $ 160  $ 96  $ 221  $ 3,018 
31 - 60 days 20  25  13  64 
61 - 90 days 13  18  12  47 
91 - 120 days 12  16  14  46 
Total (a)
$ 1,751  $ 894  $ 199  $ 106  $ 225  $ 3,175 
(a)Includes contracts under temporary deferment (up to 180 days). As of September 30, 2021 and December 31, 2020, contracts under deferment total $9 million and $37 million.

The Company ceases to accrue interest on VOI contract receivables once the contract has remained delinquent for greater than 90 days and reverses all of the associated accrued interest recognized to date against interest income included within Consumer financing revenue on the Condensed Consolidated Statements of Income/(Loss). At greater than 120 days, the VOI contract receivable is written off to the allowance for loan losses. In accordance with its policy, the Company assesses the allowance for loan losses using a static pool methodology and thus does not assess individual loans for impairment separate from the pool.

The following table details the year of origination of financing receivables using the most recently updated FICO scores, based on the policy described above (in millions):
As of September 30, 2021
700+ 600-699 <600 No Score Asia Pacific Total
2021 $ 406  $ 157  $ $ $ 29  $ 604 
2020 259  125  19  42  451 
2019 363  190  41  21  37  652 
2018 257  129  29  15  26  456 
2017 172  85  17  12  16  302 
Prior 214  110  22  18  28  392 
Total $ 1,671  $ 796  $ 133  $ 79  $ 178  $ 2,857 
As of December 31, 2020
700+ 600-699 <600 No Score Asia Pacific Total
2020 $ 424  $ 173  $ 11  $ 17  $ 55  $ 680 
2019 476  269  67  27  70  909 
2018 339  183  50  21  36  629 
2017 220  115  31  16  22  404 
2016 128  63  16  10  16  233 
Prior 164  91  24  15  26  320 
Total $ 1,751  $ 894  $ 199  $ 106  $ 225  $ 3,175