The Department of Housing and Urban Development's top housing official, in the Reagan administration's first statement on condominium conversions, said the government should let the free market system reign and do nothing to curb this national trend.

Assistant Secretary of Housing Philip D. Winn, testifying before Rep. Benjamin S. Rosenthal's (D-N.Y.) House subcommittee on commerce, consumer and monetary affairs, said the administration "must oppose" Rosenthal's proposed two-year ban on the conversion of rental units to condominiums.

Richard Pratt, chairman of the Federal Home Loan Bank Board, which regulates the nation's savings and loan institutions, agreed during testimony at the same hearing that the board "cannot endorse legislation or regulatory initiatives which restrict or prohibit conversions."

Rosenthal, who has introduced a legislative package to do just that, has said conversions are "displacing those on fixed and limited incomes, providing windfall profits to developers and speculators, eroding the stock of available rental housing and escalating inflation in the housing market."

Winn, a former Denver developer who did real estate consulting and financing and converted three medium-sized condominium properties, disagreed with Rosenthal's contention that the growing conversion trend is a problem.

"At a time when it is nearly impossible for a first-time homeowner to enter the housing market, condominiums and cooperatives may provide these citizens with their only opportunity to own their own home," Winn testified. He added that condominiums and cooperatives meet the needs of smaller families, single persons and older homeowners "trading down for less space and fewer ownership responsibilities."

"The federal government, quite frankly, has no business in attempting to impose uniform acts on the business of rental-housing conversion. If anything, condominium laws, if they are necessary at all, are best left written by local governments."

The District of Columbia, which now has nearly 15,000 condominiums, has some tough conversion laws, as does New York state, Rosenthal said. Although Winn contended that half the states in the nation have laws regulating conversions, Rosenthal said only New York's and the District's have any bite.

Rosenthal said that in most conversion situations, more than 50 percent of the tenants "are forced to or voluntarily leave" their rented homes.

Bank Board Chairman Pratt conceded that conversion in "an already tight housing market reduces rental stock" but he said he still believes "markets allocate resources better than governments do."

Pratt said changes in tax laws to permit faster depreciation of rental structures or provide other incentives might encourage investment in rental housing.

Rosenthal has proposed sweeping tax law changes that would discourage landlords from selling rental properties to condominium developers by taxing profits on these sales at ordinary income tax rates, rather than at the far lower rates on capital gains. Income from sales to tenant associations, on the other hand, would be taxed at the lower rate.

Winn said he opposed such legislation as improper "tampering with private ownership."

Winn added, "It may seem I am pro-developer . . . but I will probably go down as the roughest [housing] commissioner in the history of the country in enforcing the existing rules and regulations" that developers must follow under various HUD programs.