Page D-10, Occupancy, among other things, it says "institution reports the owner-occupancy status of the property for which property location is being reported. see 4(a)(9)"
Page D-12 4(a)(9) 2. Property Location--"For a home purchase loan, an institution reports the property taken as security. If an institution takes more than one property as security, the institution reports the location of the property being purchased...."
It appears that you are right, security is customer's residence, report occupancy as 1. If you take both, use purchased property and report as 2.
NOLA is my Beach!