Speaking before the House Financial Services Committee today, Edward DeMarco, acting director of the Federal Housing Finance Agency maintains that the government-sponsored enterprises could still cost the taxpayers $400 billion. Fannie Mae and Freddie Mac were taken into conservatorship by the FHFA in September 2008. Since the end of 2007, the GSEs have lost $226 billion with 73% of that stemming from the single-family credit guarantee business. The Treasury has recorded losses of $148 billion attributable to its bailout of Fannie and Freddie. DeMarco said the two companies have "mostly eliminated" the purchases of Alt-A and interest-only loans while in conservatorship. Serious delinquency rates stand at 18% for Alt-A loans and 12% for interest-only loans. He laid out three reasons why Fannie and Freddie bought these and subprime loans. "They did it to make money. They did it to stem their growing loss of market share. And they did it because of housing goals," DeMarco said. FHFA has constrained Fannie Mae and Freddie Mac new business development while in consevatorship so the two firms can strengthen their operations and focus on loss mitigation. Mortgage servicers modified 171,176 Fannie and Freddie loans in the second quarter, up 24% from the first quarter. Loans that have fallen behind by 60 days or more for the entire Fannie and Freddie portfolio decreased by 7% in the second quarter to 1.6 million. DeMarco said the FHFA is working with the GSEs to develop financial projections, but the results will be modeled projections not forecasts or expected outcomes, according to DeMarco. He addressed some calls for a form of explicit federal insurance to be part of the housing finance system in the future. But, "replacing the enterprises’ 'implicit' guarantee with an explicit one does not resolve all the shortcomings and inherent conflicts in that model, and it may produce its own problems." He questioned the ability of the government to price the risk of mortgage default better than private markets and said policy makers could allocate or price mortgage credits in particular areas, distorting the market. DeMarco said explicit credit support on top of mortgage-interest tax deductions could direct even more of the government's investments toward the housing market. He said lawmakers should weigh these incentives against other uses of the money. Write to Jon Prior.