Answer:
If your LOS is triggering an alert because it considers it wrong to treat the permanent take-out loan as a purchase, it is wrong. Contact them to explain what exactly is triggering the alerts. It could be for some other reason... but it can't be because of the "Purchase" treatment.
HMDA: The permanent financing of a temporary construction loan is a HMDA "home purchase loan". See 1003.2(j) Comment #3:
"3. Construction and permanent financing. A home purchase loan includes both a combined construction/permanent loan or line of credit, and the separate permanent financing that replaces a construction-only loan or line of credit for the same borrower at a later time. A home purchase loan does not include a construction-only loan or line of credit that is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time or that is extended to a person exclusively to construct a dwelling for sale, which are excluded from Regulation C as temporary financing under ยง 1003.3(c)(3). Comments 3(c)(3)-1 and -2 provide additional details about transactions that are excluded as temporary financing."
https://www.bankersonline.com/regulations/12-1003-002#p
Rescission: Reg Z declares all parts of a construction and permanent financing to be "residential mortgage transactions". (See 1026.2(a)(24) and Comment #4.) Residential mortgage transactions are exempt from rescission.
1026.23(f) Exempt transactions. The right to rescind does not apply to the following:
(1) A residential mortgage transaction.<?b>..
https://www.bankersonline.com/regulations/12-1026-023#23f
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