Hurricane Sandy Offers Banks Risk and Opportunities (Update 1)

Capital One also said that "the storm and its aftermath expose these loans to an elevated risk of loss," but that the company had not yet completed its "evaluation of the impact of the storm and do not know the extent of disruption to the individuals, businesses, or properties that support our loans."

"Consequently, it is too early to estimate the potential financial impact on our future earnings," the company said, adding that "historically, insurance proceeds and government support that follow natural disasters have significantly mitigated our losses."

JPMorgan Chase (JPM) on Thursday that "the potential financial impact from Hurricane Sandy on the Firm will be dependent upon a number of factors, such as the amount of credit extended to affected persons and businesses, the extent of damage, and the borrower's financial condition, including the amount of insurance proceeds and governmental assistance available to them, and that "the Firm is in the early stages of quantifying the potential impact from Hurricane Sandy on its financial results of operations."

Citigroup (C) on Tuesday said that it was continuing "to assess the impact on Citi's facilities and customers in the affected areas and what impact, if any, the storm could have on its results of operations for the fourth quarter of 2012." Last Sunday, Citigroup waived late payments for 90 days, offered loan extensions for 90 days (and longer, depending on guidance offered by investors with loans serviced by Citi), and suspended foreclosure sales for borrowers in hurricane-affected areas, as defined by the Federal Emergency Management Agency (FEMA).

Loan Modifications and Forbearance

Banks large and small can offer to modify portfolio loans, to allow affected borrowers to delay making loan payments for an extended period of times, by lengthening the term of the loan.

This can be a bit more complicated if an affected borrower has a mortgage serviced by a bank but owned by Fannie Mae (FNMA) or Freddie Mac (FMCC), but "Large institutions like Fannie and Freddie have gone through this before and generally pretty adept at putting in place temporary solutions to deal with something like this," according to Petrasic.

Fannie Mae announced quickly on Oct. 30 that "servicers have the ability to grant forbearance to any borrower they believe has been affected by a natural disaster," and said that "within ninety days, servicers are expected to establish contact with homeowners who have been affected and determine if additional assistance is necessary."

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