In 3-quart saucepan, melt butter over medium heat. Stir in onion, bell pepper and serrano chile; cook about 6 minutes or until vegetables are softened. Stir in flour and taco seasoning mix; cook 1 minute, stirring constantly. Gradually beat in milk with whisk. Heat to boiling, stirring constantly; boil and stir 1 minute. Remove from heat; beat in Kraft™ Velveeta™ cheese and 2 cups of the Cheddar cheese with whisk until melted. Reserve 3/4 cup of the sauce.