It turns out that Fed chief Ben Bernanke does have the power to surprise, suggesting today in testimony on Capitol Hill that the federal government directly guarantee jumbo mortgages as part of a solution to provide relief to the mortgage markets. This probably needs a little bit of explaining: both of the GSEs currently have what is known as a quasi-government guarantee, which means that the bonds they issue are only implicitly backed by the full faith of the U.S. government. Bernanke’s proposal is apparently that the GSEs pay a fee to the federal government to get an explicit guarantee for jumbo mortgages — a move that wouldn’t require tinkering with the conforming loan limit. From the Wall Street Journal:

As an alternative to lifting that $417,000 cap, Mr. Bernanke offered a surprise answer to questions on Capitol Hill. He suggested that Congress could consider allowing the companies, known as “government sponsored enterprises,” buy mortgages of as much as $1 million from lenders, pay the government a fee for guaranteeing them and then turn them into securities to be sold to investors. “That would be, I think, of some assistance to the mortgage market,” the Fed chairman said. “From the federal government’s point of view, it would be taking on some credit risk, which you may or may not be willing to do.” He added, “It would be a good idea to make the GSEs ultimately responsible for some, any excess losses, or some part of excess losses, relative to the premiums that are paid.”

Not surprisingly, Sen. Charles Schumer (D., N.Y.), chairman of the Joint Economic Committee, jumped on the idea. Numerous reports tonight have suggested he will introduce a bill shortly to make Bernanke’s idea legislative reality — at least so far as the House is concerned. The WSJ notes that the idea endorsed by Bernanke has been floated in the past, but gained no traction in the Senate. Something tell me this time around the block might be very different. Is it too early to start talking about the “Bernanke put?”