I just want confirmation on this from someone. My bank's mortgage department wants to set up a procedure with a residential developmer to encourage borrowers to apply with us. We would waive the underwriting fee normally charged to the seller for all of these loans. The waiving of the underwriting fee sounds to me like a referral fee/kick back. Is there something about this I'm missing that would make it OK? I would appreciate someone confirming my thoughts or enlightening me. Thanks

"We would waive the underwriting fee normally charged to the seller for all of these loans."

How do you (the bank) charge the seller an underwriting fee? Normally, the bank only has the ability to charge fees to the borrower. Now, if the borrower and the seller separately contract for the seller to pay certain fees that is one thing, so I am confused.

I agree with your premise however. If the purchase contract between the buyer and the seller indicates the seller is going to pay the underwriting fee and these are the only loans in which you waive the fee, you are in essence providing something of value to the developer and it would run afoul of Section 8.

I've been down that same road many years ago and it failed the section 8 test.

The contract may provide for either the borrower or seller to pay the underwriting fee but usually (from what I've been told) the contract usually calls for the seller to pay for the fee as a benefit for the borrower. The seller is trying to sell spec houses so they agree to pay the underwriting fee. But if we normally charge the fee and waive it on these, I agree that its a Section 8 violation. Thanks for the confirmation.

What you actually have in the "seller paid fees" is very common...the price is adjusted to cover those fees. By not charging the fee (which is actually charged on the borrower, just "paid" by the seller)you have given the builder a direct benefit.

(I realize you realize this....just adding some "Meat" to the "potatoes" for your argument to your peers)