Where in Regulation Z or any appraisal guidance does it state that loan officers cannot order an appraisal?

You will find Valuation Independence in section 226.42 in Regulation Z and you will also want to review the Interagency Appraisal and Evaluation Guidelines found in the Federal Register.

http://www.occ.gov/news-issuances/federal-register/75fr77450.pdf

I have read Regulation Z 226.42 a dozen times. From what I take, it says that a covered person is prohibited from the following (226.42(c)):

1. Seeking to influence a person preparing a valuation to report a certain value on the home.

2. Withhold payments (or threaten) to withhold payments.

3. Imply that future jobs depend upon a valuation

4. Exclude valuators due to them not reporting certain values on a home.

5. Conitioning payment based upon a valuation.

It may be a fine line, but where in the summarized points above does it say that a loan officer can not order the appraisal. It just states that they can't do any of the points above.

Hypothetically speaking, if you have controls in place to monitor the appraisal ordering process, couldn't you have a loan officer order an appraisal and still not violate Regulation Z?

(iii) No employee, officer or director in the creditor’s loan production function, as defined in paragraph (d)(5)(i) of this section, is directly or indirectly involved in selecting, retaining, recommending or influencing the selection of the person to prepare a valuation or perform valuation management functions, or to be included in or excluded from a list of approved persons who prepare valuations or perform valuation management functions.

(5) Definitions. For purposes of this paragraph, the following definitions apply:

(i) Loan production function. The term “loan production function” means an employee, officer, director, department, division, or other unit of a creditor with responsibility for generating covered transactions, approving covered transactions, or both.

And to answer your final question, I too will refer you back to the rule and guidance: if under 250mil in assets, depending on the strength of those cntrols, most likely, over 250 mil, I wouldn't even try to circumvent the rules and defs in today's environment.