(a) Method of payment. Payment of claims shall be made in the following manner:
(1) Payment in cash. Unless a written request for payment in debentures is filed with the application, payment shall be made in cash.
(2) Optional payment in debentures. Payment shall be made in debentures upon the filing of a written request for same with the application.
(b) Amount of payment. Upon acceptable assignment of the note and security instrument to the Commissioner, the insurance benefits shall be paid in an amount equal to 90 percent of the amount determined as follows:
(1) By adding to the unpaid principal amount of the loan, computed as of the date of default, the following items:
(i) Any accrued interest due as of the date of execution of the assignment of the loan to the Commissioner.
(ii) Any advances approved by the Commissioner made previously by the lender under the provisions of the note or security instrument or instruments.
(iii) Reimbursements for such reasonable collection costs, court costs, and attorney's fees as may be approved by the Commissioner.
(iv) Any loan insurance premiums paid after default.
(v) If payment is made in cash, an amount equivalent to the debenture interest which would have been earned thereon, as of the date such cash payment is made, except when the lender fails to meet any one of the applicable requirements of §§ 241.850, 241.875, and 241.880, within the specified time and in a manner satisfactory to the Commissioner (or within such further time as the Commissioner may approve in writing), the interest allowance in such cash payment shall be computed only to the date on which the particular required action should have been taken or to which it was extended.
(2) By deducting from the total of the items computed under paragraph (b)(1) of this section the following items:
(i) Any amount received by the lender on account of the loan after the date of default.
(ii) Any net income received by the lender from the property covered by the note or security instrument and not applied to prior debts held by the lender.