(a) Prior to making a loan commitment under this article, the agency shall approve a tenant selection plan submitted by the applicant for such a loan. The agency shall make regulations from time to time governing the terms of such tenant selection plans. Such plans shall include criteria for tenant selection based upon the established income limits for eligible tenants which may vary with the size and circumstances of the person or family. Such income limits shall be sufficiently flexible to avoid undue economic homogeneity among the tenants of a project. Tenant selection plans shall provide that as between applicants equally in need and eligible for occupancy of the unit, preference may be given to the elderly and to persons displaced by public action or natural disaster.

(b) The agency shall by rules and regulations provide for the periodic examination of the annual income of any person or family residing in any project constructed or rehabilitated with a loan from the agency. In the event that the annual income of a person or family residing in any such project increases and exceeds the income limits prescribed by applicable rules and regulations of the agency but is not more than twenty-five per cent above the annual income so prescribed for admission to the project, the owner or managing agent of such project shall permit the person or family to continue to occupy the unit. The agency or (with the approval of the agency) the mortgagor of any project constructed or rehabilitated with a loan from the agency, may terminate the tenancy or interest of any person or family residing in such project whose annual income exceeds one hundred twenty-five per cent of that prescribed by applicable rules and regulations of the agency and which continues to exceed the same for a period of six months or more: Provided, That no tenancy or interest of any such person or family in any such project shall be terminated except upon reasonable notice and opportunity to obtain suitable alternate housing, in accordance with rules and regulations of the agency: Provided further, That any such person or family, with the approval of the agency, may be permitted to continue to occupy the unit, subject to payment of a rent or carrying charge surcharge to the mortgagor in accordance with a schedule of surcharges fixed by the agency. The agency may require the mortgagor to make payable such surcharge to the agency's general fund.