Section 27. The commonwealth, acting by and through the department, may, to the extent of appropriations provided for such purpose, enter into contracts with sponsors of rental housing projects, financed through the agency established pursuant to chapter seven hundred and eight of the acts of nineteen hundred and sixty-six, for financial assistance in the form of a loan by the commonwealth to facilitate the construction or rehabilitation of rental housing projects in locations where there is a need for such housing.

Each such contract shall provide for annual disbursements of loan proceeds in such amounts as the department determines appropriate, for a period not to exceed fifteen years; provided, however, that the amount of such disbursements shall not exceed in any one year, on a per unit basis, the difference between the amount determined by the department to be necessary to pay debt service on a typical, newly constructed rental housing project at prevailing interest rates on bonds whose interest is exempt from federal or state taxation, and the amount necessary to pay such debt service at an interest rate of five per cent per annum; and provided further, that the total amount of, and schedule for, such disbursements shall be determined by the department to be consistent with the repayment of the loan as hereinafter provided.

Prior to entering into any such contract, the department shall find: (1) that the area in which the proposed rental housing project is to be located is a housing development area, or that the proposed rental housing project is a low and moderate income rental housing project; (2) that the proposed rental housing project is itself designed to house persons and families of varied economic means, and will not contribute to undue concentration of low income persons and families in any one neighborhood; and (3) that the amount of any loan to be provided appears to be the minimum amount necessary to make the proposed rental housing project feasible, and to ensure that twenty-five per cent of the units in such project will be occupied by persons and families, who are, at the time of initial occupancy, of low income.

In the case of a rental housing project that is determined to be a low and moderate income rental housing project, the department shall require that the sponsor of such project make every reasonable effort to rent available units, other than units reserved for low income persons and families, to moderate income persons or families, prior to renting such units to other persons and families.

Any loan made pursuant to this section shall be secured by a lien on real or personal property, or both, satisfactory to the department. Such loans shall be subject to such terms and conditions as the department may prescribe, including but not limited to, such interest rate as may be set by the department.

Any loan made pursuant to this section shall be repaid to the MHFA, according to terms and conditions established by MHFA; provided, however, that MHFA shall not waive any loan in whole or in part. The repayment proceeds shall be used by the MHFA for the benefit of low and moderate income households under this program and through the transfer of these repayments to the department, to be used under the direction of the undersecretary for housing and community development in support of the following: (i) payments to cities and towns pursuant to section 9 of chapter 40R; (ii) technical assistance to cities and towns engaged in comprehensive planning related to the development of affordable housing plans; and (iii) efforts to develop housing in collaboration with employers. The transfer of repayment proceeds shall occur annually commencing with an initial transfer of not more than $15,000,000.

Notwithstanding the provisions of any special or general law to the contrary, and as a condition precedent to entering into any contracts financed pursuant to this section, the MHFA shall make a determination for each development financed pursuant to this section whether:

(1) the allocation of state rental assistance funds is necessary to achieve a fiscally sound project, and;

(2) alternative sources of funding are inappropriate; provided, however, that the director of housing and community development shall, pursuant to said determination, allocate funds appropriated for the state rental assistance program to eligible units within MHFA developments financed pursuant to this section, the number of said units to which state rental assistance funds shall be allocated, not to exceed twenty-five per cent of the total number of units in each development.