If a builder has a good relationship with an institution, and the bank decides to give a special rate to all constructions loans for which he is building, will that constitute a violation of a certain Reg? or is it permissable since the builder has a good relationship with the bank?

Your loan policy and procedures need to spell out the definition of "good relationship." And whatever that definition is.....it needs to be applied across the board to all borrowers or you'll have a fair lending issue. Slap happy discretionery pricing, in my opinion, has fallen by the wayside....just can't be safely mastered anymore.