Anyone who has sat through a U.S. Congressional hearing -- present company included -- will tell you that the hearings are often 99% exasperation and 1% illumination.

Hours of each session can go by without hearing anything voters/readers really need to know about. Still, every once in a while, up pops something imaginative, sometimes even involving a topic that wasn't intended to be the focus of the hearing.

Such an event occurred Thursday during U.S. Federal Reserve Chairman Ben Bernanke's testimony before the U.S. Congress' Joint Economic Committee.

Bernanke, responding to a question from U.S. Senator and Committee Chairman Charles Schumer (D-New York) on the federal government's $417,000 insurance cap on mortgages, suggested that Congress could consider allowing Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), under a temporary plan, to buy mortgages up to $1 million from banks and mortgage companies, pay the U.S. Government a fee for having the federal government guarantee them, then turn them into securities to be sold as investments.

"That would be, I think, of some assistance to the mortgage market," Bernanke testified, The Wall Street Journal reported. "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."

Sen. Schumer seemed impressed, and said he would consider introducing a bill to accomplish Bernanke's suggestion. "I think that's a very good idea," Schumer said, The Journal reported.

Essentially, what Bernanke proposed was a new insurance plan, a sort of 'U.S. Congress Diversified Insurance Inc.' Under Bernanke's proposal, Fannie Mae and Freddie Mac would retain their primary purpose, as government sponsored enterprises, and would bear the bulk of the additional risk. However, Bernanke added that, "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."

Market Analysis: Essentially, Chairman Bernanke's proposal, even if temporary, would diversify the risk associated with owning mortgage notes. By allocating some of that risk to the U.S. Congress (the federal government), the proposal would relieve Fannie and Freddie of a significant portion of mortgage note risk, while providing exactly what the mortgage sector needs at this time: more liquidity via the sale of investments (including bonds) backed by those would-be government-insured notes.

A critique of Bernanke's idea will come from those who do not want the U.S. Congress / federal government -- in any form -- to assume more mortgage risk, arguing that the federal government does not have the money or that it's not the proper role of government. Nevertheless, that does not change the undeniable reality of the distressed mortgage market: in the months ahead, some entity will have to provide a solution that increases mortgage market liquidity, and right now it doesn't look like it will be the Bank of France.