Federal officials have removed Montgomery County's housing authority from probationary status imposed two years ago, but they rated the agency's overall handling of a key rental subsidy program for low-income tenants as "marginally satisfactory."

Officials at the U.S. Department of Housing and Urban Development said the county's Housing Opportunities Commission had made major improvements in the program, which subsidizes rents for more than 4,100 households.

Yet Lee A. Palman, director of HUD's Office of Public Housing, said in a letter to county officials on Tuesday that the agency's spending of administrative fees from HUD would remain restricted for at least another 18 months.

In a July 1997 report, HUD detailed widespread mismanagement in the county's handling of the federal Section 8 rental subsidy program, dealing a black eye to Montgomery's housing authority, which had long been considered among the nation's best. The commission was given two years of probation to fix the problems, or risk a HUD takeover of its $38 million rental subsidy program.

In this week's letter, Palman cited "great strides" in the quality of staff, program procedures, internal controls and compliance with federal regulations. But, he said, three of 10 findings from the 1997 report remained uncorrected as of July:

* The housing authority was not having third parties confirm the annual incomes of people receiving rental subsidies, as required by federal law.

* It was not determining whether rents being paid to landlords were reasonable, as required.

* It still was not conducting required inspections of subsidized housing units on a timely basis. No inspections were done from January to June of this year.

HUD gave the agency two months to submit a plan on how it will resolve these issues.

Palman said in an interview that he believes county officials can fix these problems.

Richard J. Ferrara, the housing authority's executive director, said the removal of probationary status "is like a cloud has been lifted."

Ferrara said the agency's problems ran so deep that two years was not enough time to resolve them. "We're not finished with all the work that needs to be done, but this was a very broken place," he said.

Ferrara said the remaining problems should be resolved within six months.