Because the prepayment and default options embedded in a mortgage are not tradable and cannot be priced by the widely used risk neutral pricing model, pricing errors will occur when applying the pricing methodology to the valuation of mortgage-backed securities. By using the Equilibrium Mortgage Pricing Model proposed by Chen, Liao, and Yang (2004) and the American market data, we examine the effects on the valuation and value-at-Risk of mortgage-backed securities if applying risk neutral pricing methodology. Our numerical analyses found significant errors in both the valuation and value-at-risk estimation.