I'm trying to confirm my suspicions regarding rescission. I have a customer purchasing a new home. In lieu of a cash down payment the borrower will be pledging their current home as additional collateral. This will be a purchase transaction but since I am using their current home as part of the collateral package should the entire transaction be subject to rescission?

Official Interpretation
23(a) Consumer's Right to Rescind
Paragraph 23(a)(1)

4. Special rule for principal dwelling. Notwithstanding the general rule that consumers may have only one principal dwelling, when the consumer is acquiring or constructing a new principal dwelling, any loan subject to Regulation Z and secured by the equity in the consumer's current principal dwelling (for example, a bridge loan) is subject to the right of rescission regardless of the purpose of that loan. For example, if a consumer whose principal dwelling is currently A builds B, to be occupied by the consumer upon completion of construction, a construction loan to finance B and secured by A is subject to the right of rescission. A loan secured by both A and B is, likewise, rescindable.

Thank you

What are the ramifications if rescission was not given? Are there any options to have them sign after the fact?

You cannot un-ring the rescission bell after the fact. They can rescind for three years and get all interest and other closing costs back, sue you for civil monetary damages and use it to forestall foreclosure.