a loan officer in our institution uses father-in-law on most appraisal orders (but not very many know this is father-in-law) could this come back to haunt anyone?

Certainly potential for issues: for starters, take a look at Reg. Y:

§ 225.65 Appraiser independence.

(b) Fee appraisers. (1) If an appraisal is prepared by a fee appraiser, the appraiser shall be engaged directly by the regulated institution or its agent, and have no direct or indirect interest, financial or otherwise, in the property or the transaction.

http://www.fdic.gov/news/news/financial/2005/fil2005a.html

See question #16.