How much dread should be attached to the upcoming end to the Federal Reserve’s vapid buying of mortgage-backed securities come March?

First the background. Around this time last year, the Fed announced that it would allocate $1.25 trillion to buy MBS. Since then, the Fed has largely been the lender of last resort to the mortgage market, effectively buttressing it from collapse.

As of Nov. 11, the Fed owned $774.8 billion of MBS.

Before addressing the question above, it is important to recognize that the Fed will end the program at the conclusion of the first quarter of 2010. If it does not, the implications for the dollar and inflation are too great.

OK, so we’ve established that. On to Lawrence Fink, the chairman and CEO of BlackRock and the designated harbinger of doom for Wall Street. In a speech to Wall Street investors this week, Fink isolated the end of the Fed’s MBS program as a key troublesome factor for the markets. Fink pointed out that the Fed is expecting private investors to come in and take over the buying the federal government has done on that market since last November. But Fink is doubtful the private sector can handle the supply. And you cannot count on Fannie Mae and Freddie Mac to pick up the slack; both enterprises have caps on their balance sheets. While he did not say so specifically, he implied that investors should dump MBS, because pricing will plummet come April 1.

And the opposite argument? Well, that investors dump MBS today in anticipation of April 1 and, in fact, there is enough demand to meet the market’s supply. This is the sort of game within a game that Fink and BlackRock play. When you have more than $1 trillion of assets, as BlackRock does, you can play that game hard.

So what’s the upshot? I’d point to the $774.8 billion of MBS on the Fed’s balance sheet. That’s a lot of MBS, and neither the central bank of China nor any other central bank that is hungry to park currency can do about that. I’d bet the program’s end will press down pricing, and that will show the market what the true value of US MBS is today. And it won’t be pretty.