ALL of these scammers know they are circumventing laws, but some states may not have such explicit language to prohibit it.

It sounds like the goal is just to use non-arms length transactions to squeeze a little bit more LTV out of the properties.  

I get 15 year fully amortizing 5/1 arms.

When making a choice to acquire a property, there are myriad explicit and implicit considerations that must be taken into account.  

Or does this violate the arms length restriction?

I've seen rates on those (they're generally ARM's) go as low as 6.49%(if you buy it down) for no income verification products; even lower for full doc.  

My bank is offering me 100% financing on a 5/1 ARM at 3.55%, which is a whole other discussion on whether i should use that financing.

@Ben PiperNo income verification rates for properties (1-4, non warrantable condo's etc...) are running in the mid 7's on 3 year ARMs with anywhere from 2-4 points depending on loan size.

Currently my bank has 6/1 arms starting at 4.5% for the first 6 years and capped at 6.2% in year 7 and beyond.

Being a hard money lender to another (un-related) investor who flips houses and simply collecting interest on a loan is a good way to keep things arm's length and eliminate UBIT exposure.There are a lot of positive ways you can put IRA money to work in real estate and a lot of good threads on the topic here on BP.