Good Afternoon!
I just had one of my MLO's call me asking what he should do about a consumer who applied for a mortgage, and the MLO has reasonable suspicion that the consumer is mentally incapacitated or mentally disabled. Aside from the impression in the application interview, the consumer works for agency that staffs mentally impaired/disabled individuals and has access to his paystubs - but gets an allowance from a 3rd party on his earnings.
Maybe this isn't compliance - but I don't even know where to start! How do we find out if he has the legal &/or mental capacity to enter into a loan agreement - what is our obligation? What can we ask? Has anyone else ever run into this before - and if so, how did you handle it? As you may see, I'm a bit dumbfounded here?!

Any input is greatly appreciated, thank you!

According to ECOA you cannot discriminate due to a handicap. It'd probably be best to rethink your denial reasons. I would treat the individual as if he was of the mental capacity and continue on with underwriting as usual. Hope this helps, looks like you're in a sticky situation though!

According to ECOA you cannot discriminate due to a handicap.

There is no such prohibitive factor in the ECOA. However since this is an application for a mortgage there is such a prohibitive factor in the Fair Housing Act.

If a person has a mental disability then they may or may not have the capacity to enter into a binding contract under state law. I would advise carefully reviewing Reg V Section 222.30(e) and then a conversation with the bank's attorney for a recommended procedure.