WASHINGTON — A top government official on Tuesday accepted responsibility for lavish multimillion-dollar compensation packages awarded to executives at Fannie Mae and Freddie Mac.

But Edward DeMarco, the acting director of the Federal Housing Finance Agency, also pointed the finger at Congress for dragging out a conservatorship that was never meant to last this long.

"The best way to address concerns with executive compensation is action by Congress to restructure the nation's housing finance system and dissolve the conservatorships. Conservatorship is not designed to be a multi-year holding state," he told the Senate Banking Committee.

DeMarco painted a stark picture for lawmakers angered by the fact that chief executives at Fannie and Freddie are receiving $6 million in pay each year as they continue to require millions extra in taxpayer support.

"$12.2 million is a pile of money. I mean, it's a pile of money," said Sen. Jon Tester, D-Mont. "When we're dealing with folks in the state of Montana, or in the state of Tennessee, or in the state of Colorado, that are having a hard time paying their electric bills, paying for their prescription drugs, or making their books balance at the end of the month they see these kinds of compensations come down utilizing taxpayer dollars there's a reason people are protesting in the streets."

Republicans took the opportunity to focus on the Obama administration's failure to provide a concrete proposal to reform the housing finance market.

"If Congress had acted, taxpayers would not be subsidizing the pay of Fannie and Freddie executives," said Sen. Richard Shelby, R-Ala., ranking member of the committee. "The American taxpayer should not have to subsidize million dollar compensation packages for Fannie and Freddie executives. This is just another example of the flawed structure of the GSEs."

DeMarco expressed significant concerns if Fannie and Freddie are kept in conservatorship for much longer, especially as they try to make long-term decisions on their investments and recruiting talent.

"Being in conservatorship is actually continuing that weird place between being a government agency and being a truly private firm," said DeMarco. "We've got the taxpayers even more explicitly on the hook here."

DeMarco, who has been in charge of the two companies since 2009, acknowledged the economic pain across the country just as executives of the two companies were receiving millions in compensation.

"The concern that Americans have about this is something that I well understand," DeMarco said. "I appreciate them. We will continue to focus on this issue and see what we can do to further address the concerns you are raising."

But he also reminded lawmakers that those that were responsible for the failure of Fannie and Freddie are long gone.

He said the government-sponsored enterprises had to pay bonuses because they needed talent to manage $5 trillion worth of mortgage assets and $1 trillion of annual new business.

"Others may believe that this sort of talent is easily and quickly hired at compensation far below that of competing private firms, but I do not," said DeMarco. "This is a question of judgment. Judgment exercised by balancing the need to limit compensation as much as possible, while ensuring stable, continuous operations at the enterprises in support of the country's housing finance system."

But DeMarco also sought to correct media reports that suggested executives had received $12.8 million in pay in 2010 as "bonuses."

"That number is the sum of $7.5 million in deferred pay and $5.3 million in target incentive opportunity payments," he said.

The compensation packages are modeled after similar plans agreed upon for those institutions who received aid under the Troubled Asset Relief Program.

After some consultation, FHFA set a target of $6 million a year for each CEO. That, DeMarco said, effectively rolled back CEO pay to pre-2000 levels - less than half of the target pay for those executives prior to conservatorship.

Chief financial officers would receive $3.5 million each per year, and executive vice presidents would receive less than $3 million or below.

The basic compensation structure for senior executives includes a base salary, typically capped at $500,000; a performance-based incentive opportunity and deferred salary. Incentive pay is limited to one-third of overall compensation and payment is based on performance of the enterprises - a fact that puzzled some lawmakers.

"There are many who would like at the performance at Fannie and Freddie and say, 'Frankly they haven't done a very good job in those areas that you have pointed out — loss mitigation, getting people into modifications. I think there are some troubling numbers, 2010 modifications were significantly far ahead than what we see this year and yet they're still collecting bonuses," said Sen. Jack Reed, D-R.I.

"How do you rationalize what we're seeing and the award?"

Additionally, a portion of executive's compensation is deferred salary paid with a one-year lag in order to help retain employees.

"For the highest paid executives, deferred salary is the largest component of their compensation," said DeMarco. Executives who leave voluntarily forfeit their deferred pay.

DeMarco defended the compensation structure saying it was "designed to align with taxpayer interests."

But he acknowledged the issue was "vexing." He detailed the difficulty in retaining talent at the companies, who work under a great deal of uncertainty over the future of the GSEs, and face a much higher degree of scrutiny and criticism that often put them at risk for tarnishing their reputation. Adding to that are the forsaken private sector opportunities that these executives pass on at potentially higher pay.

"In our time as conservator, we have had quite a number of senior executives depart from both companies and it has not always been easy to fill these positions with people from the outside," said DeMarco. "Compensation and the uncertain future of the companies are both cited as chief reasons why candidates for these positions back out."

DeMarco took full responsibility for the selection and compensation packages provided to executives at Fannie and Freddie. (FHFA does consult with the Treasury Department before finalizing its package, but only for advice.)

He said the agency has been working to "step down the compensation" levels for executive positions.

Already, all executive officers at both companies have reduced their target pay by an average of 40%.

"Just like we're trying to gradually withdraw Fannie and Freddie's footprint in the market, just like we're trying to gradually shrink their retained portfolio, we're trying now to go from where we set it in '09 to gradually pull compensation back further," said DeMarco.

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