If a bank sells all of its loans on the secondary market, could the bank pay referral fees for those loans? It is my understanding that Section 8 of RESPA does not apply to secondary market transactions. Correct?

No, except to your own employees.

From Appendix B:
5. Facts: A, a "mortgage originator," receives loan applications, funds the loans with its own money or with a wholesale line of credit for which A is liable, and closes the loans in A's own name. Subsequently, B, a mortgage lender, purchases the loans and compensates A for the value of the loans, as well as for any mortgage servicing rights.

Comments: Compensation for the sale of a mortgage loan and servicing rights constitutes a secondary market transaction, rather than a referral fee, and is beyond the scope of Section 8 of RESPA. For purposes of Section 8, in determining whether a bona fide transfer of the loan obligation has taken place, HUD examines the real source of funding, and the real interest of the named settlement lender.

I think you are confusing "compesation" as it relates to a secondary market transaction with a referral fee.

I think I understand that part and my question may have been a little misleading. But if we had a customer refer a motgage loan to us and we eventually sold that loan to a third party, could we give the customer any referral fee?

Or am I just totally confused and should read the reg again?

You may not pay any referral fees to anyone other than your own employees. 3500.14(b)

It is only compensation between the buyer and seller of the loan on the secondary market that is subject to that exemption.