You could just cover it with 1/4" drywall effectively covering. 

Ok, that sounds great and we would definitely cover that requirement as we would plan to utilize the property personally likely around 4-6 weeks/year. 

Won't even cover down payment. 

That may or may not cover your acquisition and rehab costs. 

@William Larson Make sure your insurance policy covers your complete annual rental loss.

The security deposit covers borrowers credit check and basic administrative costs before the loan transfer will be initiated".Any thoughts on this maneuver?

Yikes, the new requirements aren't that big of deal, but if they pursue those further options, that would definitely make it more difficult for people that want to do live in house hack with Airbnb to cover the mortgage.    

If you don't have access to ready cash, then I would definitely have reserves to cover you when things get tight.  

@Colin Perry If your purchase price covers the 1st lien and 2nd lien ( IRS lien ) they would be paid in full.

BTW, as long as the lease payments cover your existing PITI, many lenders will take a high percentage of the rent towards you income, and it might 'ding' your debt to income ratio a bit, but probably not prohibit your going for another property/loan.