If federal assistance for low-rent housing becomes available in any form not applicable to projects under this chapter, the department shall immediately report the circumstances to the general court together with such recommendations for legislation as may be necessary to enable such projects to qualify for such assistance. Upon the availability of federal financial assistance for low-rent housing projects, each housing authority having a contract for state financial assistance shall, upon receipt of written notice from the department, immediately enter into negotiations with the federal government to arrange for federal assistance with respect to any project developed hereunder and for the termination or reimbursement, in whole or in part, of state financial assistance. For any such project the department may order any housing authority (1) to apply for federal financial assistance and (2) upon obtaining the approval of the federal government, to enter into a contract or contracts for federal assistance and to make such arrangements as are possible to terminate, reduce or subordinate the obligation of the commonwealth to render financial assistance in such amount as is provided by federal assistance. No order of the department shall in any way affect any outstanding obligations of a housing authority or the rights of any holders of the notes thereof. The amount of federal payments shall be used to the fullest allowable extent, first, to meet the payment of principal and interest on all notes guaranteed by the commonwealth and, second, to reimburse the commonwealth for grants made on account of the project for which the federal payment was received.