Numerous sources emphasize the importance of washing one's hands upon waking in the morning. Rav Haim Palachi (Turkey, 1788-1868), in his Kaf Ha'haim, warns that one who neglects this Misva is deserving of excommunication, and his sin is considered as grave as the sin of adultery. Moreover, students of the Arizal taught that one who fails to wash Netilat Yadayim in the morning will be reincarnated in the form of water that flows down the street constantly, without stopping – the same punishment that is given to murderers.
Elsewhere, in Torah Ve'haim, Rav Haim Palachi mentions the legend told of the Ba'al Shem Tov (1698-1760) who was once walking through a forest when he encountered a large toad. The toad spoke to the Ba'al Shem Tov and said that it was a tortured, reincarnated soul. In this soul's previous life, he denied the importance of the morning hand washing, and did not fulfill this requirement. He was thus sent back down in the form of a toad, and has been there for 500 years.
The Shulhan Aruch (Orah Haim 4:18) writes that if a Torah scholar fails to wash his hands when Halacha requires washing, then he will forget his Torah knowledge. If a layman neglects the hand-washing requirements, then he will lose his sanity.
Hacham Ovadia Yosef, in a number of responsa, cites several earlier Poskim who maintained that the harmful spiritual forces which contaminate the hands during sleep no longer exist. One of the reasons given for the morning Netilat Yadayim is the need to eliminate these forces, but according to some Poskim – most notably, the Maharshal (Rav Shlomo Luria, Poland, 1510-1573) – these forces do not exist in our time. This would mean that although we must nevertheless wash our hands in the morning because of the other reasons given, it suffices to pour water twice on each hand, and not three times, as the only reason for a third pouring would be to eliminate the forces of impurity.
In a later responsum, Hacham Ovadia clarified that this position should not be relied on, but it may be invoked as a reason for leniency to combine with other factors.