We have a builder that would like to refer customers to us for mortgage loan. The builder would take the application and we would pay the builder a flat $25. Would this be a
Section 8 violation

I think so. There is no actual service performed, other than the referral of the customer to the bank.

I have a question along similar lines. Can you pay an employee, for business development, a commission based off a percentage of the business brought in?

Yes. There is an exception in Section 8 for incentive payments paid to employees.

I agree with Paul on both of his answers. Linda's scenario is clearly a Section 8 violation. Taking an application and referring it is NOT compensatable. Refer to FIL-21-99 (March 12, 1999) for much more info. Basically, you have to do work (5 of 14 things) in addition to the application to be compensated.

Section 3500.14(g)(vii) allows banks to pay its own employees for any referral.

Does anyone know if there are any qualifications to this exemption? Things like:
1) no matter if it is a loan that is made or denied;
2) nominal fee, % based, etc.

The new Consumer Protection for Bank Sales of Insurance provide qualifications like 1 time nominal fee not conditioned on whether the referral results in a transaction [350.50(b)]

There are no published standards regarding the nature of mortgage employee referral programs. However, I would look at the rules published for insurance sales and the guidelines in the Interagency Statement on Non-deposit Products as models to follow. IMHO, they provide a rational basis for administration of referral programs.

Of course, for people involved in the origination and processing of such loans, there may be more appropraite incentive programs, based on volume, proftability, etc.

(I must be a genius - David agrees with me!)

David -- It's great to have someone besides myself step up to the plate on Section 8 violations!

As for your question, there is no de minimus exception or allowance in RESPA. HUD interprets RESPA as absolute. Thus, even a small fee, such as $25 violates Section 8.

You raise an interesting question, however. RESPA is couched in terms of settlement. What about loans that don't go to settlement? Your approval/denial issue is intriguing.

There are a lot of ways to skin a cat, so to speak. I have set up an affiliated business arrangement between a state bank and a builder (a mortgage brokerage) that has been successful, even in getting business from other builders in the area. Other options include having the lender rent an office (LPO) in the builder's model home (at market rent rates), and sharing costs on a pro-rata basis for the builder's promotional material (a one page ad attached to or as part of the builder's pamphlets).