We have a loan application from someone who appears to clearly be mentally disabled. Our lender is concerned that we could be exposing ourselves to more risk by providing the loan if they qualify - I can see both sides of this and don't know what to do. Any help would be appreciated.

Mental incompetence can be used as a defense if the loan is challenged in court. Think of a bad bank making a loan to someone who cannot fully understand the terms and conditions.

So, would you deny it? If so, what would be the reasoning on the AAN? It's not a large request, so not a big deal if a loss - but thinking through how it would look via affecting their credit, etc.