MARRIOTT VACATIONS WORLDWIDE Corp

The following table shows the composition of our vacation ownership notes receivable balances, net of reserves.

We reflect interest income associated with vacation ownership notes receivable on our Income Statements in the Financing revenues caption. The following table summarizes interest income associated with vacation ownership notes receivable.

Credit Quality Indicators - Vacation Ownership Notes Receivable

We use the origination of vacation ownership notes receivable and the FICO scores of the customer by brand as the primary credit quality indicators, as historical performance indicates that there is a relationship between the default behavior of borrowers by FICO score and the brand associated with the vacation ownership interest (“VOI”) they have acquired. The estimates of the variable consideration for originated vacation ownership notes receivable and the reserve for credit losses on the acquired vacation ownership notes receivable are based on default rates that are an output of our static pool analyses and estimates regarding future defaults.

In the third quarter of 2023, we increased our vacation ownership notes receivable reserve to reflect then-current trends in delinquencies and default rates. We estimated the amount of the increase in our sales reserve primarily using a historical period of increased defaults. The additional reserves recorded in 2023 adjusted our future default rate estimate to reflect then-current macroeconomic conditions, including inflation outpacing wage growth, continuing high interest rates, mixed economic indicators and increased global insecurity. Subsequent to the third quarter of 2023, we increased our sales reserve rate to provide for higher expected cumulative losses on new originations.

We believe the cumulative impact of inflation on consumers and the related impact of year-over-year increases in maintenance fees for 2023 and 2024 are driving continued elevated delinquencies and defaults. As a result, during the second quarter of 2024, we increased our sales reserve by $70 million to reflect increases in expected cumulative loss rates for our vacation ownership notes receivable originated during 2021-2024. In estimating the increase in the sales reserve, we considered then-current macroeconomic conditions, including higher consumer debt levels, moderating inflation, continued high interest rates, uncertainty around timing and frequency of interest rate adjustments and continued mixed economic indicators.

The weighted average FICO score within our consolidated vacation ownership notes receivable pool was 725 and 723, at September 30, 2024 and December 31, 2023, respectively, based upon the FICO score of the borrower at the time of origination.

Acquired Vacation Ownership Notes Receivable

Acquired vacation ownership notes receivable represent vacation ownership notes receivable acquired as part of the ILG Acquisition and the Welk Acquisition. The following table shows future contractual principal payments, net of a $10 million reserve, and interest rates for our acquired vacation ownership notes receivable at September 30, 2024.

The following tables show the acquired vacation ownership notes receivable, before reserves, by brand and borrower FICO score at origination.

Originated Vacation Ownership Notes Receivable

Originated vacation ownership notes receivable represent vacation ownership notes receivable originated by Legacy-ILG and Legacy-Welk subsequent to each respective acquisition date, and all Legacy-MVW vacation ownership notes receivable. The following table shows future principal payments, net of reserves, and interest rates for our originated vacation ownership notes receivable at September 30, 2024.

The following table summarizes the activity related to our originated vacation ownership notes receivable reserve.

The following tables show originated vacation ownership notes receivable, before reserves, by brand and borrower FICO score at origination.

The following tables detail the origination year of our originated vacation ownership notes receivable, before reserves, by brand and borrower FICO score at origination as of September 30, 2024, and gross write-offs by brand for the first three quarters of 2024.

Vacation Ownership Notes Receivable on Non-Accrual Status

For both non-securitized and securitized vacation ownership notes receivable, we estimated the average remaining default rates of 14.22% as of September 30, 2024 and 13.00% as of December 31, 2023. 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 $14 million as of September 30, 2024 and $13 million as of December 31, 2023.

The following table shows our recorded investment in non-accrual vacation ownership notes receivable, which are vacation ownership notes receivable that are 90 days or more past due.

The following table shows the aging of the recorded investment in principal, before reserves, in vacation ownership notes receivable as of September 30, 2024 and December 31, 2023.