U.S. Federal Reserve officials are thinking carefully about tapering off their purchases of mortgage debt to push the $1.45 trillion program into next year rather than end it on December 31 as planned.

They have not made up their minds, and some worry that the U.S. central bank's intervention in the housing market may be crowding out private lenders.

Another concern is that prolonging asset-buying that expands the Fed's balance sheet may hinder its eventual exit from aggressive expansive monetary policies.

But the U.S. housing market has recently shown signs of stabilizing, and other policymakers feel that their massive purchases of mortgage-backed securities have helped keep home loans flowing while private credit was very scarce.

In addition, the Fed opted at a meeting on August 12 to extend by one month a similar, although much smaller, buying program of longer-dated U.S. government bonds in order to minimize disruption as it steps back from this market.

I think something similar might be possible for MBS, but no decision has been made, St. Louis Federal Reserve Bank President James Bullard told reporters in Little Rock, Arkansas, on Thursday.

I think we agreed that on the Treasuries we'd do the tapering thing and see how it works. We can decide some time during the fall how we want to do the MBS, he said.

The Fed has so far bought more than $792 billion of securities issued by government-backed mortgage agencies Fannie Mae, Freddie Mac and Ginnie Mae, at a pace of up to $25 billion a week. In all, it has planned to purchase a total of $1.25 trillion in MBS.

It has also bought $118 billion of mortgage agency debt out of a total $200 billion earmarked.

The current pace of MBS purchases is several times larger than the total weekly level of new issuances in the agency MBS market, indicating the scale of Fed involvement and hinting at the potential for disruption when it pulls out.

Seeking an exit that does not damage a still-fragile market will weigh in favor of slowing the pace of purchases into next year.

The central issue is what we call the cliff effect, the cliff effect being stopping a program abruptly without signaling to markets a tapering off, Atlanta Federal Reserve Bank chief Dennis Lockhart said on Wednesday.

I am personally aware of and concerned that market distortions could ensue from a poorly communicated exit from the MBS program, so I think it is very important that we condition the markets for whatever policy we choose to follow, he told reporters in Chattanooga, Tennessee.

Fed officials say the real advantage of the tapering strategy is that it allows markets the time to adjust to the exit, hopefully opening the door for private players to step back in.

The larger the Fed's share of the market in which it is intervening, the more compelling the case to glide its way out with the minimum of disruption.

Fed officials are open-minded about how best to engineer a gradual withdrawal from the mortgage market. They hope private lending will advance as the Fed retreats and that an apparent stabilization in housing is not undermined by a fresh shortage of mortgage credit.

However, there does not seem to be much appetite for expanding the size of the program at this stage.

Lockhart said he was not leaning in that direction, while Richmond Federal Reserve Bank President Jeffrey Lacker said on Thursday that ending the purchases early may even be warranted to avoid over-stimulating the economy.

I will be evaluating carefully whether we need or want the additional stimulus that purchasing the full amount authorized under our agency mortgage-backed securities purchase program would provide, Lacker, a voting member of the Fed's policy-setting committee, told reporters in Danville, Virginia.

(Editing by Kenneth Barry)