Federal Reserve Chairman Ben S. Bernanke said Thursday
that Fannie Mae and Freddie Mac should be allowed to
securitize loans of up to $1 million as a way to alleviate
the mortgage credit crunch.

Currently, Fannie and Freddie cannot purchase or securitize
loans larger than $417,000 -- their loan limit cap.

The Fed chairman said the government could act as a
guarantor to aid Fannie and Freddie in securitizing jumbos.
Suppose that the GSEs were to pay their usual mortgage
insurance credit fee to the government, which then acted
as guarantor so it would be taking away the credit risk
from the GSEs, he told the Joint Economic Committee of
Congress. They could process these jumbo loans and sell
them in the secondary market.

Approval for the government-sponsored enterprises to
securitize jumbos would need congressional approval.