The Chattanooga Housing Authority has been placed on HUD's "troubled" list and will have to submit monthly progress reports for a year.
CHA Executive Director Betsy McCright said the action was taken after CHA scored only a five out of a possible 30 on its finances.
The agency in recent years has had several rounds of layoffs to try to right its financial ship.
Ms. McCright said CHA had to enter a memorandum of understanding with HUD and come up with a remediation plan.
Philippe Lindsay, the new CHA chief financial officer, said steps are being taken to improve the agency's budget picture.
He said he has assured employees that additional layoffs are not planned.
He said the agency is dealing with such issues as the "iceberg" involving its funding of a portion of the failed Mayfair on Market project in the 700 block of Market Street.