After months of predictability, investors in mortgage bonds backed by housing finance giants Fannie Mae, Freddie Mac and Ginnie Mae face a measure of uncertainty as they await details of how the Federal Reserve plans to wind down its $1.25 trillion program to buy these bonds.

Market participants are hoping for some indication from the Federal Open Market Committee meeting on Wednesday on how it will play its hand. So far, the Fed - which has become the largest buyer of mortgages - has played its cards close to its chest, and the market is uneasy not knowing.

The central bank's purchase of these so-called agency mortgage bonds since the start of this year has provided stability in this $5 trillion corner of the credit market. Risk premiums, which hit 283 basis points last year at the height of the credit crisis, have since narrowed by nearly 140 basis points. That has kept mortgage rates for homeowners at reasonable levels; rates on fixed rate 30-year mortgages were recently 5.22%.

Together with the first-time home buyer credit, the Fed's actions have contributed to the better-than-expected home sales this summer and continued signs of stabilization in the housing market.

So far this year, the central bank has bought $861.95 billion, more than two-thirds of its planned outlay. Market participants have begun to fret about what will happen without the Fed.

"We are getting very nervous," said Didi Weinblatt, USAA's vice president of mutual funds portfolios, who runs both a Ginnie Mae fund and a general fund that carries 15% in agency mortgage bonds.

"They should make some signal soon, as they are an awfully big buyer in the MBS market," she said.

There are some who think it's time for the central bank to exit the market. Others say such an abrupt end would undo the Fed's efforts to keep mortgage rates low and instead suggest a gradual wind down of its purchases and an extension of the program into the early months of next year.

The Fed, however, has paid little heed to these calls and continued to buy steadily at a pace of $5 billion a week, just as it did at the start of the program.

"We expected to see a slow down, but there's been no sign of it yet," said Art Frank, a mortgage strategist at Deutsche Bank.

Most market participants are confident that there will be no drastic policy move because the housing recovery is still in its infancy. Also, the Fed wouldn't want to rattle foreign investors, mostly central banks and state owned funds, who own about one-tenth of the agency MBS market.

"There are too many foreign holders to do anything disruptive," Weinblatt said.

Domestic portfolio managers and private investors have turned to sellers of these bonds in recent months. Pacific Investment Management Co., which runs the largest bond fund in the world, the Total Return Fund, pared its holdings of mortgage debt to 54% from 66% in the second quarter in response to narrowing risk premiums.

"The strong rally in these securities has driven yield premiums closer to fair value," PIMCO said.

Institutional investors may benefit from waiting for the Fed to exit the market. Risk premiums are expected to widen by 50 basis points on the Fed's exit, according to Laurie Goodman, mortgage strategist with Amherst Securities.

That could present a buying opportunity.

-By Prabha Natarajan, Dow Jones Newswires, 212-416-2468; prabha.natarajan@dowjones.com