The sale of credit life insurance on a mobile home loan has made it subject to HOEPA requirements. Our loan processing system automatically imposes a 5.00% increase in the loan rate after default. The disclosure adds: "However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law." Will we be in violation of the HOEPA prohibition against an increase in the interest rate after default, or does this caveat cover it?

If it's a HOEPA loan you can not contract for such a provision.

From 226.32:

(d) Limitations. A mortgage transaction subject to this section shall not include the following terms:

(4) Increased interest rate. An increase in the interest rate after default.