(b) The state, acting by and in the discretion of the commissioner, may enter into a contract with a community housing development corporation or an eligible developer for state financial assistance in the form of a loan or deferred loan, which loan or deferred loan shall be used to establish and administer a revolving loan fund for the construction, rehabilitation and renovation of existing or planned low and moderate income housing, as approved by the commissioner. Such fund may also consist of any state financial assistance received from a contract between said commissioner and such community housing development corporation or eligible developer entered into pursuant to subsection (a) of this section, any proceeds recovered by such corporation or developer from any mortgage loan or from any loan or on account of such project or from the sale of such project and funds from any other source. Such fund shall be used by such corporation or developer, as approved by the commissioner, for the expenses of acquisition, development, project selection, construction, rehabilitation, renovation and oversight of existing or planned low and moderate income housing or to make loans for construction, rehabilitation and renovation of such housing on such terms and conditions as the commissioner may determine. Recipients of loans under this subsection for housing located in a distressed municipality, as defined in section 32-9p, may assign or prepay such loans with the approval of the community housing development corporation. In the case of housing developed or rehabilitated by a community housing development corporation in distressed municipalities as defined in section 32-9p, the policies of the Department of Housing adopted under section 8-37dd, and the regulations of the