This section of the regulation you cited determines if the FI is covered under Reg. C:
(1) For coverage purposes, the existing obligation is a home purchase loan (as determined by the lender, for example, by reference to available documents; or as stated by the applicant), and both the existing obligation and the new obligation are secured by first liens on dwellings; and
If they are covered this section of your cite determines if the loan is reportable as a refinancing:
(2) For reporting purposes, both the existing obligation and the new obligation are secured by liens on dwellings.
The existing loan is dwelling secured. If the new loan is also dwelling secured and to the same borrower it is a reportable refinancing if the FI is a covered institution.
The opinions expressed are mine and they are not to be taken as legal advice.