I'm aware that Reg Z does not set limits on these items. (Only that we must disclose and we must state the ceiling.) One of upper mgmt is sure that "something" limits us to 2% periodic rate caps and 6% lifetime cap. Other than, state usury, is anyone aware of any regulation that would provide such limits?

I do not think there is anything that limits your per change caps or your life time cap (as long as the life time cap doesn't go over usury), other than if your state law may address it.

2% seems to be the norm (however we have one with 3), and if you look at Part 226, Appendix H-14: Variable-Rate Mortgage Sample it uses 2% as an example of the yearly rate cap. So, this may be where some folks gets the idea you're limited to 2%.

Or, it might be a secondary market requirement for the specific loan you're making. Your underwriter may have some information that addresses this.