UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
  ______________
   FORM
10-Q
  ______________
   (Mark
One)
  x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For
the quarterly period ended March 31, 2008
  OR
  [  ]
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  Commission
File Number 0-23972
  ______________
  AMERICAN
MORTGAGE ACCEPTANCE COMPANY
 (Exact
name of Registrant as specified in its charter)
 ______________
 
 
 Massachusetts
            
            13-6972380(State
      or other jurisdiction of incorporation or organization)
            
            (I.R.S.
      Employer Identification No.)625
      Madison Avenue, New York, New York
            
            10022(Address
      of principal executive offices)
            
            (Zip
      Code)
 
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.   Yes  xNo  [  ]
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company (as
defined in Rule 12b-2 of the Exchange Act).
 
 Large
      Accelerated filer [  ]
            
            Accelerated
      filer xNon-
      accelerated filer [  ]
            
            Smaller
      reporting company [  ]
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes  [  ]      No  x
 
 As of
April 30, 2008, there were 8,433,470 outstanding common shares of the
registrant’s shares of beneficial interest, $0.10 par value.
   
  Table
of Contents
 
 AMERICAN
MORTGAGE ACCEPTANCE COMPANY
 
 FORM
10-Q
 
 
 
 
 PagePART
      I – FINANCIAL INFORMATIONItem
      1.
            Financial
      Statements
            
            
            3Item
      2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            
            
            18Item
      3.
            Quantitative
      and Qualitative Disclosures about Market Risk
            
            
            26Item
      4.
            Controls
      and Procedures
            
            
            27PART
      II – OTHER INFORMATIONItem
      1.
            Legal
      Proceedings
            
            
            28Item
      1A.
            Risk
      Factors
            
            
            28Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            
            
            28Item
      3.
            Defaults
      Upon Senior Securities
            
            
            28Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            
            
            28Item
      5.
            Other
      Information
            
            
            28Item
      6.
            Exhibits
            
            
            28SIGNATURES
            
            
            
            29
 
 
  - 2
-
  PART
I.  FINANCIAL INFORMATION
 
 Item
1.  Financial Statements.
 
 AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
 Condensed
Consolidated Balance Sheets
 (in
thousands, except per share amounts)
 
 
 
 
 March
      31,
              2008
            
            December
      31,
              2007(Unaudited)ASSETSCash
      and cash equivalents
            
            $
            17,241
            
            
            $
            15,844Restricted
      cash
            
            
            6,693
            
            
            
            8,783Investments:Mortgage
      loans receivable, net (Note 3)
            
            
            474,540
            
            
            
            529,644Available-for-sale
      investments, at fair value (Note 4):CMBS
            
            
            43,967
            
            
            
            69,269Mortgage
      revenue bonds
            
            
            4,783
            
            
            
            4,879Accounts
      receivable (Note 6)
            
            
            22,430
            
            
            
            31,066Deferred
      charges and other assets, net (Note 7)
            
            
            6,727
            
            
            
            6,914Total
      assets
            
            $
            576,381
            
            
            $
            666,399LIABILITIES
      AND SHAREHOLDERS’ (DEFICIT) EQUITYLiabilities:CDO
      notes payable
            
            $
            362,000
            
            
            $
            362,000Repurchase
      facilities (Note 8)
            
            
            79,561
            
            
            
            136,385Line
      of credit – related party (Note 9)
            
            
            78,832
            
            
            
            77,685Preferred
      shares of subsidiary (subject to mandatory repurchase)
            
            
            25,000
            
            
            
            25,000Interest
      rate derivatives (Note 10)
            
            
            36,190
            
            
            
            26,631Accounts
      payable and accrued expenses (Note 11)
            
            
            16,142
            
            
            
            16,293Due
      to Advisor and affiliates (Note 16)
            
            
            1,362
            
            
            
            1,471Dividends
      payable
            
            
            308
            
            
            
            308Total
      liabilities
            
            
            599,395
            
            
            
            645,773Commitments
      and contingencies (Note 17)Shareholders’
      (deficit) equity:7.25%
      Series A Cumulative Convertible Preferred Shares, no par value;680
      shares issued and outstanding in 2008 and 2007
            
            
            15,905
            
            
            
            15,905Common
      shares of beneficial interest; $0.10 par value; 25,000 sharesauthorized;
      8,848 issued and 8,433 outstanding in 2008 and 2007
            
            
            885
            
            
            
            885Treasury
      shares of beneficial interest at par; 415 shares in 2008 and
      2007
            
            
            (42
            )
            
            
            (42
            )Additional
      paid-in capital
            
            
            128,087
            
            
            
            128,087Accumulated
      deficit
            
            
            (134,238
            )
            
            
            (104,956
            )Accumulated
      other comprehensive loss
            
            
            (33,611
            )
            
            
            (19,253
            )Total
      shareholders’ (deficit) equity
            
            
            (23,014
            )
            
            
            20,626Total
      liabilities and shareholders’ (deficit) equity
            
            $
            576,381
            
            
            $
            666,399
 
  See
accompanying notes to condensed consolidated financial statements.
 
  - 3
-
  AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
 Condensed
Consolidated Statements of Operations
 (in
thousands, except per share amounts)
 (Unaudited)
 
 
 
 
 Three
      Months Ended
              March
      31,2008
            
            2007Revenues:Interest
      income
            
            $
            10,607
            
            $
            11,726Other
      revenues
            
            
            78
            
            
            775Total
      revenues
            
            
            10,685
            
            
            12,501Expenses:Interest
            
            
            7,997
            
            
            8,495Interest
      – distributions to preferred shareholders of subsidiary(subject
      to mandatory repurchase)
            
            
            547
            
            
            569General
      and administrative
            
            
            963
            
            
            605Fees
      to Advisor and affiliates (Note 16)
            
            
            733
            
            
            968Impairment
      of investments (Notes 3 and 4)
            
            
            26,498
            
            
            --Amortization
      and other
            
            
            242
            
            
            200Total
      expenses
            
            
            36,980
            
            
            10,837Other
      losses:Change
      in fair value and loss on termination of derivative instruments (Note
      10)
            
            
            (2,640
            )
            
            (31
            )Loss
      on sale or repayment of investments
            
            
            (39
            )
            
            --Total
      other losses
            
            
            (2,679
            )
            
            (31
            )(Loss)
      income from continuing operations
            
            
            (28,974
            )
            
            1,633Income
      from discontinued operations, including gain on sale of real
      estate
              owned
      (Note 5)
            
            
            --
            
            
            3,531Net
      (loss) income
            
            
            (28,974
            )
            
            5,1647.25%
      Convertible Preferred dividend requirements
            
            
            (308
            )
            
            --Net
      (loss) income available to common shareholders
            
            $
            (29,282
            )
            $
            5,164Earnings
      per share (basic and diluted) (Note 15):Basic and
      diluted(Loss)
      income from continuing operations
            
            $
            (3.47
            )
            $
            0.19Income
      from discontinued operations
            
            
            --
            
            
            0.42Net
      (loss) income
            
            $
            (3.47
            )
            $
            0.61Dividends
      per share
            
            $
            --
            
            $
            0.225Weighted
      average shares outstanding:Basic
      and diluted
            
            
            8,433
            
            
            8,402
 
  See
accompanying notes to condensed consolidated financial statements.
 
 
  - 4
-
  AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
 Condensed
Consolidated Statements of Cash Flows
 (in
thousands)
 (Unaudited)
 
 
 
 
 Three
      Months Ended
              March
      31,2008
            
            2007Cash
      flows from operating activities:Net
      (loss) income
            
            $
            (28,974
            )
            $
            5,164Reconciling
      items:Impairment
      of investments
            
            
            26,498
            
            
            --Change
      in fair value and loss on termination of derivative
      instruments
            
            
            2,640
            
            
            31Amortization
      and accretion
            
            
            (23
            )
            
            111Other
      non-cash income, net
            
            
            (103
            )
            
            (263
            )Depreciation
      expense
            
            
            --
            
            
            336Gain
      on sale of real estate owned
            
            
            --
            
            
            (3,611
            )Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            646
            
            
            253Other
      assets
            
            
            (51
            )
            
            (3
            )Due
      to Advisor and affiliates
            
            
            (109
            )
            
            (176
            )Accounts
      payable and accrued expenses
            
            
            (151
            )
            
            (213
            )Net
      cash provided by operating activities
            
            
            373
            
            
            1,629Cash
      flows from investing activities:Principal
      repayments or sale of mortgage loans
            
            
            55,135
            
            
            1,846Funding
      and purchase of mortgage loans
            
            
            (759
            )
            
            (102,382
            )Investment
      in CDO securities
            
            
            --
            
            
            (10,061
            )Principal
      repayments or sale of debt securities
            
            
            --
            
            
            1,360Proceeds
      from sale of real estate owned
            
            
            --
            
            
            11,987Principal
      repayments on real estate owned
            
            
            --
            
            
            35Decrease
      in restricted cash
            
            
            2,090
            
            
            12,835Decrease
      in escrow receivables
            
            
            7,990
            
            
            --Principal
      repayments of mortgage revenue bonds
            
            
            45
            
            
            52Net
      cash provided by (used in) investing activities
            
            
            64,501
            
            
            (84,328
            )Cash
      flows from financing activities:Proceeds
      from repurchase facilities
            
            
            265,504
            
            
            107,134Repayments
      of repurchase facilities
            
            
            (322,328
            )
            
            (2,321
            )Proceeds
      from line of credit – related party
            
            
            2,397
            
            
            71,240Repayments
      of line of credit – related party
            
            
            (1,250
            )
            
            (76,050
            )Proceeds
      from note payable – related party
            
            
            --
            
            
            4,968Interest
      rate derivative termination costs
            
            
            (7,492
            )
            
            --Deferred
      financing costs
            
            
            --
            
            
            (197
            )Dividends
      paid to shareholders
            
            
            (308
            )
            
            (15,120
            )Net
      cash (used in) provided by financing activities
            
            
            (63,477
            )
            
            89,654Net
      increase in cash and cash equivalents
            
            
            1,397
            
            
            6,955Cash
      and cash equivalents at the beginning of the year
            
            
            15,844
            
            
            7,553Cash
      and cash equivalents at the end of the period
            
            $
            17,241
            
            $
            14,508
 
  See
accompanying notes to condensed consolidated financial statements.
 
 
  - 5
-
  AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
 
 NOTE
1 – Basis of Presentation
 The
condensed consolidated financial statements include the accounts of American
Mortgage Acceptance Company and its wholly owned subsidiaries.  All
intercompany accounts and transactions have been eliminated in
consolidation.  Unless otherwise indicated, we herein refer to
American Mortgage Acceptance Company and its subsidiaries as “AMAC”, “we”, “us”,
“our”, and “our Company”.  We operate in one business segment, which
focuses on investing in mortgage loans and other debt instruments secured by
multifamily and commercial property throughout the United States.
 
 We are
externally managed by Centerline AMAC Manager Inc. (the “Advisor”), which acts
as our advisor and is a subsidiary of Centerline Holding Company
(“Centerline”).  Centerline also owns 6.9% of our common shares of
beneficial interest (“common shares”) and 41.2% of our 7.25% Series A Cumulative
Preferred Shares (“Preferred Shares”) at March 31, 2008, which amounts to an
aggregate ownership percentage of over 10%, assuming all Preferred Shares were
converted to common shares.
 
 The
condensed consolidated financial statements have been prepared without
audit.  In the opinion of management, the financial statements contain
all adjustments (consisting of only normal recurring adjustments) necessary to
present fairly our financial position as of March 31, 2008, and the results of
our operations and our cash flows for the three-month period then
ended.  However, the operating results for interim periods may not be
indicative of the results for the full year.
 
 Certain
information and footnote disclosures normally included in annual consolidated
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America (“GAAP”) have been condensed or
omitted.  These financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in our
Annual Report on Form 10-K for the year ended December 31, 2007, which contains
a summary of our significant accounting policies.  With the exception
of the adoption of Financial Accounting Standards Board (“FASB”) Statement No.
157, Fair Value
Measurement (“SFAS 157”) (see Note 12), there have been no material
changes to these policies since December 31, 2007.
 
 The
preparation of the condensed consolidated financial statements in conformity
with GAAP requires us to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities as of the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting periods.  Actual
results could differ from those estimates.
 
 We have
reclassified certain prior year amounts to conform to the current year
presentation, in particular the reclassification of certain escrow balances
previously classified as restricted cash.
 
 
 NOTE
2 – Market Conditions and Liquidity
 
 During
2007 and 2008, developments in the market for many types of mortgage products
(including mortgage-backed securities) have resulted in reduced liquidity for
these assets.  Declining interest rates coupled with widening credit
spreads have led to reduced values and the inability to find adequate financing
for these assets.  This has resulted in an overall reduction in
liquidity across the credit spectrum of mortgage products, presenting us with
financing challenges.  As the credit markets declined, so did the
commercial real estate collateralized debt obligation (“CDO”) market, and we
decided to temporarily suspend investment activity and not pursue a second CDO
securitization.  As a result, we agreed to terminate a repurchase
facility with Citigroup Global Markets, Inc. (“Citigroup”) that we had used to
finance our investment activity and entered into an agreement to repay the
entire amount of the facility by selling or refinancing the collateral assets by
May 31, 2008.
 
 During
the first quarter of 2008, we repaid $44.3 million of the Citigroup facility by
selling certain assets.  The outstanding balance of this facility at
March 31, 2008 is $37.0 million, of which $17.3 million is being held at
Citigroup in escrow (see Note 6).  While it is our intent to sell or
refinance the remaining assets before May 31, 2008, we are currently in
negotiations with Citigroup to extend the maturity date of this facility or
provide a new credit line that would replace this facility and provide
additional financing for future needs.
 
 Prior to
the termination of the facility, we paid interest on outstanding borrowings at
rates that ranged from 30-day LIBOR plus 0.40% to 30-day LIBOR plus
1.25%.  As we continued to have borrowings under the Citigroup
facility after January 1, 2008 and to the extent we continue to have borrowings
under the facility through May 31, 2008, interest on the borrowings were or will
be increased as follows:
 - 6
-
 AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Period
            
            Interest
      rate rangeJanuary
      1 – January 31
            
            30-day
      LIBOR plus 0.75% to 30-day LIBOR plus 1.40%February
      1 – February 29
            
            30-day
      LIBOR plus 0.95% to 30-day LIBOR plus 1.60%March
      1 – April 30
            
            30-day
      LIBOR plus 2.00%May
      1 – May 31
            
            30-day
      LIBOR plus 2.50%
 
 
 In
connection with terminating the Citigroup facility, we also terminated all
associated interest rate swaps derivatives.  See Note 10 for a
detailed explanation of costs we paid to terminate these
derivatives.
 
 As market
conditions continue to fluctuate, we are evaluating strategies that may require
us to sell additional assets and extinguish any related debt obligations that
are secured by these assets.  By repaying most of our debt
obligations, we believe we can regain adequate financing when market conditions
improve to actively pursue investment strategies.  However, factors
outside of our control, such as the continuing uncertainty of the credit
markets, could further restrict our liquidity.
 
 In April
2008, in order to meet certain margin requirements, we borrowed $4.0 million
from an affiliated entity (see Note 16).  We subsequently repaid the
note with proceeds received from the repayment of a first mortgage loan during
April 2008 (see Notes 3 and 18).
 During
the first quarter of 2008, as a result of the continued market conditions and
our liquidity constraints referred to above, we recorded losses resulting from
declines in market values on our commercial mortgage-backed securities (“CMBS”)
as a reduction of earnings on our statement of operations (see Note
4).
 Following
is a summary of our investment assets as of March 31, 2008, illustrating the
amount of leverage and the amounts of hedged debt:
   (in
      thousands)
            
            Carrying
              amount
            
            Carrying
      amount pledged as collateral
            
            Amount
              securing CDO debt
      (1)
            
            Amount
              securing
      repurchase
              debt (2)
            
            Associated
      repurchase
              debt (2)(3)Mortgage
      loans receivable:First
      mortgages
            
            $
            352,495
            
            $
            352,495
            
            $
            352,495
            
            $
            --
            
            $
            --Variable-rate
      bridge loans
            
            
            6,551
            
            
            --
            
            
            --
            
            
            --
            
            
            --Fixed-rate
      mezzanine loans
            
            
            20,537
            
            
            14,626
            
            
            13,575
            
            
            1,051
            
            
            889Variable-rate
      mezzanine loans
            
            
            52,705
            
            
            42,500
            
            
            4,746
            
            
            37,754
            
            
            30,203Subordinated
      notes
            
            
            42,252
            
            
            41,752
            
            
            24,635
            
            
            17,117
            
            
            12,828Total
      mortgage loans receivable
            
            
            474,540
            
            
            451,373
            
            
            395,451
            
            
            55,922
            
            
            43,920CMBS
            
            
            43,967
            
            
            43,967
            
            
            --
            
            
            43,967
            
            
            35,641Mortgage
      revenue bonds
            
            
            4,783
            
            
            --
            
            
            --
            
            
            --
            
            
            --Totals
            
            $
            523,290
            
            $
            495,340
            
            $
            395,451
            
            $
            99,889
            
            $
            79,561
 
 (1)
            Of
      the $362.0 million of CDO notes payable, we have hedged $346.1
      million.
 (2)
            Refers
      to the Citigroup and Bear Sterns repurchase
  facilities.
 (3)
            $17.3
      million of cash is held in escrow at Citigroup, which will be used, in
      part, to satisfy repurchase facility debt (seeNote
      6).
 
  - 7
-
  AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE
3 – Investments in Mortgage Loans Receivable, Net
 
 Mortgage
loans receivable, net, consisted of two classifications of mortgages as
follows:
 
 March
      31,
              2008
            
            
            December
      31,
              2007Mortgage
      loans held for investment
            
            $
            466,872
            
            
            $
            467,734Mortgage
      loans held for sale
            
            
            7,668
            
            
            
            61,910Total
            
            $
            474,540
            
            
            $
            529,644
 
 
 During
the first quarter of 2008, we sold 11 mortgage loans to an affiliate of our
Advisor (see Note 16) for total proceeds of $55.0 million.  The sales
resulted in realized losses of $3.1 million, which were recorded in
2007.
 
 During
the first quarter of 2008, we recognized impairment charges of $1.0 million
related to two mortgage loans in our specially serviced portfolio.
 
 During
April 2008, one first mortgage loan in the amount of $6.5 million was repaid at
par.
 
 
 NOTE
4 – Available-for-Sale Investments, at Fair Value
 
 At March
31, 2008, we had CMBS and mortgage revenue bond investments classified as
available-for-sale.
 
 CMBS
investments we hold were comprised of the following as of March 31,
2008:
 
 (dollars
      in thousands)
            
            Face
              amount
            
            Purchase
              price
            
            Accreted
      cost
            
            Fair
      value
            
            Percentage
      of
              fair
      valueSecurity
      rating:BBB+
            
            $
            4,750
            
            $
            4,775
            
            $
            2,500
            
            $
            2,500
            
            
            5.7
            %BBB
            
            
            51,128
            
            
            47,671
            
            
            20,688
            
            
            20,688
            
            
            47.1BBB-
            
            
            50,991
            
            
            45,150
            
            
            20,779
            
            
            20,779
            
            
            47.2$
            106,869
            
            $
            97,596
            
            $
            43,967
            
            $
            43,967
            
            
            100.0
            %
 
 
 Information
regarding our available-for-sale investments is as follows:
 
 (in
      thousands)
            
            CMBS
            
            
            Mortgage
      revenue
              bonds
            
            
            TotalMarch 31,
      2008Amortized
      cost
            
            $
            43,967
            
            
            $
            4,623
            
            
            $
            48,590Unrealized
      gain
            
            
            --
            
            
            
            160
            
            
            
            160Fair
      value
            
            $
            43,967
            
            
            $
            4,783
            
            
            $
            48,750December 31,
      2007Amortized
      cost
            
            $
            69,269
            
            
            $
            4,668
            
            
            $
            73,937Unrealized
      gain
            
            
            --
            
            
            
            211
            
            
            
            211Fair
      value
            
            $
            69,269
            
            
            $
            4,879
            
            
            $
            74,148
 
  - 8
-
  AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   We
recognized declines in the fair value of $25.5 million on our CMBS investments
as impairment charges during the first quarter of 2008.  The decreases
in fair value are due to widening credit spreads resulting from market
conditions and are not reflective of the credit quality of the underlying
assets.  While it is our intention to hold our CMBS investments to
maturity, current market conditions could impede our ability to hold these
investments to maturity or recovery as further deterioration in market
conditions could force us to sell these assets.  As such, further
declines in fair values of these CMBS could result in additional impairment
charges.
 At March
31, 2008, all of our CMBS were pledged as collateral under our repurchase
facilities (see Note 8).
  
 NOTE
5 – Real Estate Owned – Discontinued Operations
 
 During
2007, we sold our economic interest in the Concord portfolio to an affiliated
party (see Note 16), resulting in proceeds of $12.0 million and a gain of $3.6
million.  Real estate owned property operations included in
discontinued operations were as follows:
 
 Three
      months ended
              March
      31,(in
      thousands)
            
            2008
            
            
            2007Revenues
            
            $
            --
            
            
            $
            1,815Gain
      on sale of real estate owned
            
            $
            --
            
            
            $
            3,611Net
      income
            
            $
            --
            
            
            $
            3,531
 
 
 NOTE
6 – Accounts Receivable
 
 Accounts
receivable consisted of the following:
 
 (in
      thousands)
            
            March
      31,
              2008
            
            
            December
      31,
              2007Escrow receivable
      (1)
            
            $
            17,297
            
            
            $
            25,287Interest
      receivable
            
            
            5,117
            
            
            
            5,737Other
            
            
            16
            
            
            
            42$
            22,430
            
            
            $
            31,066(1)  
       Escrow balances are being held by Citigroup as collateral, to be
      released when an asset that collateralizes the facility is
      sold based  on the proceeds of such sales.
   NOTE
7 – Deferred Charges and Other Assets, Net
 
 Detail of
deferred charges and other assets, net is provided in the table
below:
 
 (in
      thousands)
            
            March
      31,
              2008
            
            
            December
      31, 2007Deferred
      financing charges, net of accumulatedamortization
      of $1,271 in 2008 and $1,030 in 2007
            
            $
            6,626
            
            
            $
            6,867Other
      assets
            
            
            101
            
            
            
            47Total
            
            $
            6,727
            
            
            $
            6,914
 
  - 9
-
  AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
 NOTE
8 – Repurchase Facilities
 
 Our
repurchase facilities consisted of financing collateralized by investments in
mortgage loans, CMBS, bridge notes, mezzanine loans and subordinated
notes.  They are categorized in the table below by lending
institution:
 
 (in
      thousands)
            
            March
      31,
              2008
            
            
            
            December
      31, 2007Citigroup
            
            $
            37,033
            (1)
            
            
            $
            81,345Bear
      Stearns
            
            
            42,528
            
            
            
            
            55,040Total
            
            $
            79,561
            
            
            
            $
            136,385(1)  $17.3
      million of cash is held in escrow at Citigroup, which will be used, in
      part, to satisfy this liability (see Note 6).
 
 
 Citigroup
Facility
 
 During
2006, we executed a repurchase facility with Citigroup for the purpose of
funding investment activity for a planned CDO
securitization.  Borrowings on this facility had interest rates of
5.14% at March 31, 2008, as compared to 6.18% at December 31,
2007.  During 2007, we entered into an agreement to terminate this
facility, and we expect to repay it by May 31, 2008 (see Note 2).
 
 Bear Stearns
Facility
 
 During
2007, we executed a repurchase facility with Bear Stearns International Limited
(“Bear Stearns”) for the purposes of financing investment
activity.  We also used this facility to refinance our CMBS
investments previously financed through other facilities.  This
facility had borrowings at a weighted average interest rate of 4.33% at March
31, 2008, as compared to 6.26% at December 31, 2007.  The borrowings
are subject to 30-day settlement terms.
 
 Banc of America
Facility
 
 During
2007, we executed a repurchase agreement with Banc of America Securities, LLC
(“Banc of America”) to provide financing for investments in mezzanine loans and
subordinated notes.  There were no outstanding amounts on this
facility as of either December 31, 2007 or March 31, 2008.  Advance
rates on any future borrowings, which will be determined on an asset-by-asset
basis, will be subject to 30-day settlement terms.  Interest rates on
the borrowings will also be determined on an asset-by-asset basis.
 
 $55.9
million of our mortgage loans and all of our CMBS are pledged as collateral in
connection with the Citigroup and Bear Sterns repurchase facilities (see Notes 3
and 4).
 
 
 NOTE
9 – Line of Credit – Related Party
 We have a
revolving credit facility (the “Revolving Facility”) with
Centerline.  The Revolving Facility, which is unsecured, provides up
to $80.0 million in borrowings to be used to purchase new investments and for
general purposes and bears interest at 30-day LIBOR plus 3.00%.  The
Revolving Facility expires in June 2008 with a one-year extension subject to
Centerline’s approval.  In the opinion of our Advisor, at the time
this facility was extended, the terms were consistent with transactions between
independent third parties and terms upon renewal are expected to be
also.  At March 31, 2008, we had approximately $78.8 in borrowings
outstanding, bearing interest at a rate of 5.70%, compared to $77.7 million at a
rate of 7.60% at December 31, 2007.
 
 We have
covenant compliance requirements on our related party line of
credit.  These covenants include:
 
 ·
            minimum
      adjusted net worth;
 ·
            liquidity;
 ·
            debt
      service coverage;
 ·
            recourse
      debt to adjusted net worth; and
 ·
            minimum
      Adjusted Funds from Operations
(“AFFO”).
  - 10
-
  AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
 As of
March 31, 2008 and December 31, 2007, we failed to meet the minimum adjusted net
worth, the minimum AFFO and the debt service coverage requirements, causing us
to be in default of the loan agreement.  While we have not been called
upon to repay this facility, there can be no assurance that we will not be, nor
whether we will be able to extend the facility upon expiration.
 
 
 NOTE
10 – Derivative Instruments
 
 Our
derivative instruments are comprised of cash flow hedges of debt and
free-standing derivatives related to investments.  While we carry
derivative instruments in both categories at their estimated fair values on our
condensed consolidated balance sheet, the changes in those fair values are
recorded differently.  To the extent that the cash flow hedges are
effectively hedging the associated debt, we record changes in their fair values
as a component of other comprehensive income within shareholders’
equity.  If a cash flow hedge is ineffective, we include a portion of
the change in its fair value in our condensed consolidated statements of
operations.  With respect to the free-standing derivatives, we always
include the change in their fair value in our condensed consolidated statements
of operations.
 
 Cash
Flow Hedges of Debt
 
 Our
borrowings under repurchase facilities, CDO notes payable, related party line of
credit and our preferred shares of a subsidiary (subject to mandatory
repurchase) incur interest at variable rates, exposing us to interest rate
risk.  We have established a policy for risk management outlining our
objectives and strategies for use of derivative instruments to potentially
mitigate such risks.
 
 Effective
March 30, 2007, we entered into a three-year interest rate swap to reduce our
exposure to possible increases in the variable interest rate on our subsidiary’s
preferred shares (subject to mandatory repurchase).  Under the swap
agreement, we are required to pay Bear Stearns a fixed rate of 4.97% on a
notional amount of $25.0 million and will receive a floating rate equivalent to
three-month LIBOR.
 
 As of
March 31, 2008, including the above mentioned swap, we had five interest rate
swaps with an aggregate notional amount of $371.1 million, which will expire on
dates ranging from March 2010 through September 2016 and are designated as cash
flow hedges, with the hedged item being the interest payments on our
variable-rate CDO notes payable and our subsidiary’s preferred shares (subject
to mandatory repurchase).  Amounts in accumulated other comprehensive
income (as described above) will be reclassified into earnings in the same
period during which the hedged forecasted transaction affects
earnings.  Since we are hedging the interest payments on our
variable-rate debt, the forecasted transactions are the interest
payments.
 
 At
inception and on an ongoing basis, we assess whether the swaps are effective in
offsetting changes in the variable cash flows of the hedged item.  We
measure ineffectiveness of our cash flow hedges on a quarterly basis and record
any ineffectiveness in interest expense on the condensed consolidated statements
of operations.  With the exception of one, all of our swaps have been
effective, and we expect they will continue to be effective in the
future.  We have recorded an expense of $0.1 million related to
ineffectiveness on one swap.  This swap includes an embedded financing
component, which has caused and will continue to cause some ineffectiveness,
within the limits allowed by SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, to maintain hedge
accounting.
 
 In
connection with the disposition and refinancing of certain assets (see Note 2),
we terminated 31 cash flow hedges during 2007 and another 15 during the first
quarter of 2008.  Termination costs of $1.6 million are recorded in
“other losses” in 2008 due to changes to cash flows of forecasted transactions,
and $1.5 million remains in accumulated other comprehensive income and will be
amortized over the remaining lives of the terminated derivative agreements as
long as it is probable that there will be interest payments made on
variable-rate debt throughout this term.
 
 For swap
agreements that we do not plan to terminate, we estimate that $11.4 million of
the net unrealized losses included in accumulated other comprehensive loss will
be reclassified into interest expense within the next 12 months.
 
 We are
required to maintain a minimum balance of collateral with Bear Stearns in
connection with these interest rate swaps.  From time to time, as
market rates fluctuate, we may be called upon to post additional cash
collateral.  These payments are held as deposits with Bear Stearns and
will be used to settle the swap at its termination date if market rates fall
below the fixed rates on the swaps.  At March 31, 2008, we had $1.3
million of deposits held by Bear Stearns.
  - 11
-
  AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 During
the first quarter of 2008, we terminated our two remaining
swaps.  Termination costs of $1.0 million were recorded in “other
losses” during the period.
 
 Financial
Statement Impact
 
 Net
(loss) income included the following related to our interest rate hedges and
free-standing derivatives:
 
 Three
      Months Ended
              March
      31,(in
      thousands)
            
            2008
            
            
            2007Included
      in interest expense:Interest
      receipts
            
            $
            3
            
            
            $
            255Interest
      payments
            
            
            (1,232
            )
            
            
            --Ineffectiveness
            
            
            (131
            )
            
            
            --Subtotal
            
            $
            (1,360
            )
            
            $
            255Included
      in other losses:Loss
      on termination
            
            $
            (2,640
            )
            
            $
            --Change
      in fair value
            
            
            --
            
            
            
            (31
            )Subtotal
            
            $
            (2,640
            )
            
            $
            (31
            )Net
            
            $
            (4,000
            )
            
            $
            224
 
 
 NOTE
11 – Accounts Payable and Accrued Expenses
 
 Accounts
payable and accrued expenses consisted of the following:
 
 (in
      thousands)
            
            March
      31,
              2008
            
            
            December
      31, 2007Accrued
      interest payable
            
            $
            14,936
            
            
            $
            14,446Other
      (1)
            
            
            1,206
            
            
            
            1,847$
            16,142
            
            
            $
            16,293(1)  Includes
      refundable deposits, collected during the due diligence period of a loan
      transaction, which are payable to other parties.
 
 
 NOTE
12 – Fair Value Measurements
 
 In
September 2006, the FASB issued SFAS 157, which defines fair value, establishes
a framework for measuring fair value and expands disclosures about fair value
measurements (emphasizing fair value as a market-based
measurement).  To comply with the provisions of SFAS 157, we
incorporate credit value adjustments, where appropriate, to reflect both our own
non-performance risk and the respective counterparty’s non-performance risk in
the fair value measurements.  The adoption of SFAS 157 as of January
1, 2008 resulted in a $1.2 million reduction in the fair value of interest rate
derivatives which we recorded as a component of other comprehensive
income.
 
 We have
categorized our assets and liabilities recorded at fair value based upon the
fair value hierarchy specified by SFAS 157.  The levels of fair value
hierarchy are (from highest to lowest):
 
 ·
            Level
      1 inputs utilize quoted prices (unadjusted) in active markets for
      identical assets or liabilities that we have the ability to
      access.
  - 12
-
  AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 ·
            Level
      2 inputs utilize other-than-quoted prices that are observable for the
      asset or liability, either directly or indirectly.  Level 2
      inputs include quoted prices for similar assets and liabilities in active
      markets, and inputs, such as interest rates and yield curves that are
      observable at commonly quoted
intervals.
 
 ·
            Level
      3 inputs are unobservable and are typically based on our own assumptions,
      including situations where there is little, if any, market
      activity.
  In
certain cases, the inputs used to measure fair value may fall into different
levels of the fair value hierarchy.  In such cases, we categorize such
financial asset or liability based on the lowest level input that is significant
to the fair value measurement in its entirety.  Our assessment of the
significance of a particular input to the fair value measurement in its entirety
requires judgment and considers factors specific to the asset or
liability.
 The
following tables present the information about our financial assets and
liabilities measured at fair value on a recurring or non-recurring basis as of
March 31, 2008, and indicate the fair value hierarchy of the valuation
techniques utilized by us to determine such fair value:
  (dollars
      in thousands)
                
                Level
      1
                
                Level
      2
                
                Level
      3
                
                Balance
                  as
      of
                  March
      31,
                  2008Measured on a recurring
    basisAssetsAvailable-for-sale
      investments:CMBS
                
                $
                --
                
                $
                --
                
                $
                43,967
                
                $
                43,967Mortgage
      revenue bonds
                
                
                --
                
                
                --
                
                
                4,783
                
                
                4,783Total
      assets
                
                $
                --
                
                $
                --
                
                $
                48,750
                
                $
                48,750LiabilitiesInterest
      rate derivatives
                
                
                --
                
                
                36,190
                
                
                --
                
                
                36,190Total
      liabilities
                
                $
                --
                
                $
                36,190
                
                $
                --
                
                $
                36,190Measured on a non-recurring
      basisAssetsMortgage
      loans receivable – impaired(1)
                
                $
                --
                
                $
                12,618
                
                $
                --
                
                $
                12,618Mortgage
      loans receivable – held-for-sale
                
                
                --
                
                
                7,668
                
                
                --
                
                
                7,668Total
      assets
                
                $
                --
                
                $
                20,286
                
                $
                --
                
                $
                20,286(1)  
      We recorded impairment charges for two loans in this group during the
      first quarter of 2008 as described in Note 3.  No other loans had
      further impairments during 2008.
 Provided
below is a summary of the valuation techniques employed with respect to
financial instruments measured at fair value utilizing methodologies other than
quoted prices in active markets:
 
 CMBS:
                We
      generally estimate fair value of CMBS and similar retained interests based
      on market prices provided by certain dealers who make a market in these
      financial instruments.
                  
                  Due
      to limited market activity for CMBS, we perform additional analysis on
      prices received based on broker quotes.  This process includes
      analyzing the securities based on vintage year, rating and asset type and
      converting the price received to a spread.  The calculated
      spread is then compared to market information available for securities of
      similar type, vintage year and rating (i.e. CMBX).  We use this
      process to validate the prices received from brokers.
 - 13
-
 
 AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
 Mortgage
      loans receivable:
              We
      carry our mortgage loans receivable at the lower of cost or fair market
      value.  When a loan is classified as held-for-sale or when a
      loan is deemed impaired, we write the loan down to its fair value, which
      becomes its new cost basis.  We measure the fair market value of
      a loan using the observable market price for sales of similar assets or
      the market value of the loan’s collateral if the loan is
      collateral-dependent.  Market prices are determined by using
      broker quotes or services supplying market and sales data in various
      geographical locations where the collateral is
  located.
 Mortgage
      revenue bonds:
              We
      estimate fair value for each bond by utilizing the present value of the
      expected cash flows discounted at a rate for comparable tax-exempt
      investments and then comparing against any similar market
      transactions.Derivatives:
              The
      fair value of interest rate swaps are determined using the market standard
      methodology of netting the discounted future fixed cash receipts (or
      payments) and the discounted expected variable cash payments (or
      receipts).  The variable cash payments (or receipts) are based
      on an expectation of future interest rates (forward curve) derived from
      observable market interest rate curves.  In adjusting the fair
      value of our derivative contracts for the effect of nonperformance risk,
      we have considered the impact of netting and any applicable credit
      enhancements, such as thresholds and
guarantees.
 
 
 The
following table presents additional information about assets and liabilities
measured at fair value on a recurring basis and for which we utilized Level 3
inputs to determine fair value:
 Fair
      Value Measurements Using Significant Unobservable Inputs (Level
      3)(dollars
      in thousands)
              
              CMBS
              
              Mortgage
                Revenue
                Bonds
              
              TotalBalance
      at January 1, 2008
              
              $
              69,269
              
              $
              4,879
              
              $
              74,148Total
      gains or losses (realized/unrealized):Included
      in earnings
              
              
              (25,454
              )(1)
              
              --
              
              
              (25,454
              )Included
      in other comprehensive income
              
              
              --
              
              
              (52
              )
              
              (52
              )Amortization
      of costs and fees
              
              
              152
              
              
              (44
              )
              
              108Purchases,
      issuances and settlements
              
              
              --
              
              
              --
              
              
              --Transfers
      in and/of out of Level 3
              
              
              --
              
              
              --
              
              
              --Balance
      at March 31, 2008
              
              $
              43,967
              
              $
              4,783
              
              $
              48,750The
      amount of total gains or losses for the period included in earnings
      attributable to the change in unrealized gains or losses relating to
      assets still held at the reporting date
              
              $
              (25,454
              )(1)
              $
              --
              
              $
              (25,454
              )(1)  
      Recorded as impairment charges on the March 31, 2008 Condensed
      Consolidated Statement of Operations.
 
 Both
observable and unobservable inputs may be used to determine the fair value of
positions that we classified within the Level 3 category.  As a
result, the unrealized gains and losses for assets and liabilities within the
Level 3 category presented in the table above may include changes in fair value
that were attributable to both observable (e.g., changes in market interest
rates) and unobservable (e.g., changes in unobservable long–dated volatilities)
inputs.
 
 NOTE
13 – Income Taxes
 
 We have
elected to be treated as a real estate investment trust (“REIT”) under Sections
856 through 860 of the Internal Revenue Code of 1986, as amended (“the
Code”).  In order to maintain our qualification as a REIT, we are
required to, among other things, distribute at least 90% of our REIT taxable
income to our shareholders and meet certain tests regarding the nature of our
income and assets.  As a REIT, we are not subject to federal income
tax with respect to the portion of our income that meets certain criteria and is
distributed annually to shareholders.  Accordingly, no provision for
federal income taxes is included in the condensed consolidated financial
statements with respect to these operations.  We believe we have, and
we intend to continue to operate, in a manner that allows us to continue to meet
the requirements for taxation as a REIT.  Many of these requirements,
however, are highly technical and complex.  If we were to fail to meet
these requirements, we could be subject to federal income tax.
 
  -
14 -
  AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 14 – Comprehensive (Loss)
Income
 
 Comprehensive
(loss) income for the three months ended March 31, 2008 and 2007 was as
follows:
 
 Three
      Months Ended
              March
      31,(in
      thousands)
            
            2008
            
            
            2007Net
      (loss) income
            
            $
            (28,974
            )
            
            $
            5,164Net
      unrealized loss on derivative instruments
            
            
            (14,305
            )
            
            
            (1,465
            )Net
      unrealized holding loss on investments
            
            
            (25,506
            )
            
            
            (142
            )Reclassification
      adjustment for impairment loss on investments
            
            
            25,454
            
            
            
            --Comprehensive
      (loss) income
            
            $
            (43,331
            )
            
            $
            3,557
 
 
 NOTE
15 – Earnings per Share (“EPS”)
 
 Diluted
earnings per share is calculated using the weighted average number of shares
outstanding during the period plus the additional dilutive effect of common
share equivalents.  The dilutive effect of outstanding share options
is calculated using the treasury stock method.  The dilutive effect of
the preferred shares is calculated on the if-converted method.  For
the three months ended March 31, 2008, the effect of the assumed conversion of
our preferred shares is not included, as the effect would be
antidilutive.
 
 Three
      Months Ended
              March
      31, 2008(in
      thousands, except per share amounts)
            
            (Loss)
      Income
            
            Shares
            
            Per
      Share2008:
              
              Loss
      from continuing operations
            
            $
            (28,974
            )Preferred
      dividends
            
            
            (308
            )Loss
      from continuing operations available toshareholders
      (basic and diluted EPS)
            
            $
            (29,282
            )
            8,433
            
            $
            (3.47
            )2007:
              
              Income
      from continuing operations
            
            $
            1,633Preferred
      dividends
            
            
            --Income
      from continuing operations available toshareholders
      (basic and diluted EPS)
            
            $
            1,633
            
            8,402
            
            $
            0.19
 
  -
15 -
  AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 The
following summarizes all costs paid or payable to our Advisor and its
affiliates:
 
 (in
      thousands)
            
            Three
      Months Ended
              March
      31,2008
            
            
            2007Fees
      to Advisor and affiliates:Shared
      services expenses
            
            $
            414
            
            
            $
            455Asset
      management fees
            
            
            230
            
            
            
            384Servicing
      fees
            
            
            89
            
            
            
            129Total
      fees to Advisor and affiliates
            
            $
            733
            
            
            $
            968Other
      costs:Interest
      paid on related party line of credit
            
            $
            1,240
            
            
            $
            97
 
 
 Fees to Advisor and
Affiliates
 
 Fees/Compensation
 
 Under our
amended Advisory Services Agreement with our Advisor (the “Advisory Agreement”),
we pay certain fees, in addition to reimbursements of certain administrative and
other costs that our Advisor incurs on our behalf for its ongoing management and
operations of our Company.  These fees include asset management fees,
which are calculated as a percentage of our adjusted equity balance (as defined
in the Advisory Agreement), and incentive management fees, provided certain
financial hurdles are met.  Loan origination fees may also be paid to
the Advisor if we collect any from a borrower in connection with acquisitions of
investments for us.  There may also be termination fees due to the
Advisor if the Advisory Agreement is terminated without cause.
 
 Servicing
Fees
 
 We pay
Centerline Servicing Inc. (“CSI”), an affiliate of Centerline, a fee for
servicing and special servicing our mortgage loans and other investments equal
to the Advisor’s actual costs of performing such services but not less than
0.08% per year of the principal balance of the related mortgage loan or other
investment.
 
 Other Related Party
Transactions
 
 We have a
revolving credit facility with Centerline with a borrowing capacity of $80.0
million.  The maturity date of the facility is June 2008 with a
one-year optional extension.  In the opinion of our Advisor, at the
time this facility was extended, the terms were consistent with transactions
between independent third parties and terms upon renewal are expected to be
also.  At March 31, 2008, and December 31, 2007, we had $78.8 million
and $77.7 million, respectively, in borrowings outstanding, bearing interest at
a rate of 5.70% and 7.60%, respectively.
 
 We have
covenant compliance requirements on our related party line of credit (see Note
9).  As of March 31, 2008, and December 31, 2007, we failed to meet
certain of these requirements, causing us to be in default of the loan
agreement.  While we have not been called upon to repay this facility,
there can be no assurance that we will not be, nor whether we will be able to
extend the facility upon expiration.
 
 During
the first quarter of 2008, we sold 11 mortgage loans to Centerline Real Estate
Special Situations Mortgage Fund, LLC, a related party, for total proceeds of
$55.0 million (see Note 3).  In the opinion of our Advisor and CRESS’s
advisory committee, the terms of this transaction are consistent with those of
transactions with independent third parties.
 
 During
April 2008, in order to meet margin requirements, we borrowed $4.0 million from
Related Special Assets LLC, a related party at an interest rate of
8.74%.  The note was due to mature on May 19, 2008; however, we
subsequently repaid the note with proceeds received from the repayment of one
first mortgage loan during April 2008 (see Notes 3 and 18).
 
  -
16 -
  AMERICAN
MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 Guarantees
 
 In June
and October of 2000, in accordance with a loan program with Fannie Mae, under
which we agreed to guarantee a first-loss position on certain loans, we
originated two loans totaling $3.3 million.  In September 2003, we
transferred and assigned all of our obligations with respect to these two loans
to Centerline Mortgage Capital, Inc. (“CMC”), a subsidiary of
Centerline.  Pursuant to the agreement with CMC, Centerline guaranteed
CMC’s obligations, and we agreed to indemnify both CMC and Centerline for any
losses incurred in exchange for retaining all fees that we were otherwise
entitled to receive from Fannie Mae under the program.  The maximum
exposure at March 31, 2008, was $3.1 million, although we expect that we will
not be called upon to fund these guarantees.
 
 During
2003, we discontinued our loan program with Fannie Mae and will issue no further
guarantees pursuant to such program.
 
 We
monitor the status of the underlying properties and evaluate our exposure under
the guarantees.  To date, we have concluded that no accrual for
probable losses is required under SFAS No. 5, Accounting for
Contingencies.
 
 Future Funding
Commitments
 
 As of
March 31, 2008, we were committed to additionally fund the following mezzanine
loan:
  (In
      thousands)Maximum
      Amount of CommitmentIssue
      Date
              
              Project
              
              Location
              
              Total
              
              Less
      than
                1
      Year
              
              1-3
      YearsApr-05
              
              Atlantic
      Hearthstone
              
              Hillsborough,
      NJ
              
              $
              273
              
              $
              273
              
              $
              --Total
      Future Funding Commitments
              
              
              
              $
              273
              
              $
              273
              
              $
              --
 NOTE
18 – Subsequent Events
 
 During
April 2008, we borrowed $4.0 million from an affiliated party (see Note
16).  We subsequently repaid the note with proceeds received from the
repayment of one first mortgage loan during April 2008 (see Note
3).
 
 For the
period from April 1, 2008 through May 7, 2008, we paid $5.6 million due to
margin calls on our repurchase facilities.
 
  -
17 -
  Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
 
 Overview
 
 During
2007 and 2008, developments in the market for many types of mortgage products
(including mortgage-backed securities) have resulted in reduced liquidity for
these assets.  Declining interest rates coupled with widening credit
spreads have led to reduced values and the inability to find adequate financing
for these assets.  This has resulted in an overall reduction in
liquidity across the credit spectrum of mortgage products, presenting us with
financing and liquidity challenges.  As a result, we decided to
temporarily suspend investment activity toward the latter half of 2007 and began
selling assets to meet liquidity requirements.  The non-comparable
gains and losses from those asset sales and the changes in our investment
portfolio are detailed in the following sections of this
discussion.
 
 Factors Affecting
Comparability
 
 During
March 2007, we sold our economic interest in the Concord portfolio, resulting in
a gain of $3.6 million.  This amount is recorded in discontinued
operations along with rental income, property operations, mortgage interest and
depreciation for the period up to the sale.
 
 During
2007, as a result of the market conditions and our liquidity issues referred to
above, we reclassified certain unrealized losses resulting from declines in
market values on our CMBS investments previously recorded in accumulated other
comprehensive income to a reduction of earnings on our condensed consolidated
statements of operations.
 
 During
the second half of 2007 and the beginning of 2008, we terminated a significant
number of derivative instruments, resulting in termination costs recorded in
other income.
 
 Investment
Activity
 
 During
the three months ended March 31, 2008 and 2007, we originated the following
investments:
  2008
      (1)
              
              2007(dollars
      in thousands)
              
              Amount
              
              Weighted
      Average Interest Rate
              
              Amount
              
              Weighted
      Average Interest RateMortgage
      loans receivable
              
              $
              --
              
              
              --
              %
              $
              103,163
              
              
              7.75
              %CDO
      securities
              
              
              --
              
              
              --
              
              
              10,084
              
              
              9.00Total
              
              $
              --
              
              
              --
              %
              $
              113,247
              
              
              7.83
              %(1)    
      Due to current market conditions mentioned above, we did not originate any
      investments during the first quarter of 2008.
 
  Sales of
Investments
 
 During
the three months ended March 31, 2008, we sold 11 mortgage loans with an
aggregate carrying amount of $55.0 million and a weighted average interest rate
of 7.61%.  There were no sales of assets during the comparable 2007
period.
 
  -
18 -
  Results of
Operations
 
 The
following is a summary of our operations:
 
 Three
      Months Ended March 31,(dollars
      in thousands)
            
            2008
            
            2007
            
            ChangeTotal
      revenues
            
            $
            10,685
            
            $
            12,501
            
            
            (14.5
            )%Total
      expenses
            
            
            36,980
            
            
            10,837
            
            
            241.2Total
      other losses
            
            
            (2,679
            )
            
            (31
            )
            
            NMIncome
      from discontinued operations
            
            
            --
            
            
            3,531
            
            
            (100.0
            )Net
      (loss) income
            
            $
            (28,974
            )
            $
            5,164
            
            
            (661.1
            )%NM
      = Not meaningful as change is 1000% or greater.
 
 
 The
decline in our revenues during the three months ended March 31, 2008, as
compared to the same period in 2007, resulted primarily from the sale of assets
during the latter half of 2007 and the beginning of 2008 as a result of current
market conditions and short-term liquidity issues.
 
 Expenses
increased during the three months ended March 31, 2008 as compared to the same
period in 2007, particularly due to impairment of our CMBS
investments.
 
 Other
losses increased for the three months ended March 31, 2008, as compared to 2007,
as a result of certain derivatives terminated during the first quarter of
2008.
 
 Income
from discontinued operations includes operations from real estate owned that was
sold during 2007 and gain from the sale.
 
 Revenues
 
 Three
      Months Ended March 31,(dollars in thousands)
            
            2008
            
            2007
            
            Change
      from Prior Period
            
            %
      of 2008 Total
              Revenues
            
            %
      of 2007 Total
              RevenuesInterest
      income:Mortgage
      loans
            
            $
            8,555
            
            $
            10,216
            
            (16.3
            )%
            80.1
            %
            81.7
            %CMBS
            
            
            1,705
            
            
            --
            
            100.0
            
            16.0
            
            --Mortgage
      revenue bonds
            
            
            102
            
            
            106
            
            (3.8
            )
            0.9
            
            0.8Temporary
      investments
            
            
            245
            
            
            170
            
            44.1
            
            2.3
            
            1.4Debt
      securities
            
            
            --
            
            
            1,227
            
            (100.0
            )
            --
            
            9.8CDO
      securities
            
            
            --
            
            
            7
            
            (100.0
            )
            --
            
            0.1Participation
      income
            
            
            --
            
            
            699
            
            (100.0
            )
            --
            
            5.6Other
      revenues
            
            
            78
            
            
            76
            
            2.6
            
            0.7
            
            0.6Total
      revenues
            
            $
            10,685
            
            $
            12,501
            
            (14.5
            )%
            100.0
            %
            100.0
            %
 
  -
19 -
  At March
31, we had the following investments (exclusive of temporary
investments):
 
 2008
            
            
            2007(dollars
      inthousands)
            
            Carrying
      Amount
            
            
            %
      of Total
            
            
            Weighted
      Average
              Interest
      Rate
            
            
            Carrying
      Amount
            
            
            %
      of Total
            
            
            Weighted
      Average
              Interest
      RateMortgage
      loans receivable
            
            $
            474,540
            
            
            
            90.7
            %
            
            
            7.25
            %
            
            $
            646,757
            
            
            
            87.1
            %
            
            
            7.29
            %CMBS
            
            
            43,967
            
            
            
            8.4
            
            
            
            4.70
            
            
            
            --
            
            
            
            --
            
            
            
            --Mortgage
      revenue bonds
            
            
            4,783
            
            
            
            0.9
            
            
            
            8.70
            
            
            
            5,012
            
            
            
            0.7
            
            
            
            8.70Debt
      securities
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            80,955
            
            
            
            10.9
            
            
            
            6.49CDO
      securities
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            10,061
            
            
            
            1.3
            
            
            
            9.00$
            523,290
            
            
            
            100.0
            %
            
            
            7.05
            %
            
            $
            742,785
            
            
            
            100.0
            %
            
            
            7.23
            %
 
 
 Interest
income from mortgage loans decreased significantly for the three months ended
March 31, 2008 as compared to 2007, primarily due to the sale of first mortgage
loans, bridge notes, mezzanine loans and subordinated notes towards the latter
half of 2007 and in the beginning of 2008.
 
 Interest
income from CMBS in 2007 relates to the purchase of a portion of 12 classes of
CMBS investments during the latter half of 2007.
 
 Interest
income from temporary investments increased for the 2008 period, as compared to
2007, primarily due to interest earned on restricted cash balances held with
custodians.
 
 Interest
income from debt (GNMA and FNMA) securities decreased for the three months ended
March 31, 2008, due to the sale of our entire debt security portfolio in
November of 2007.
 
 Participation
income decreased for the three months ended March 31, 2008, as compared to 2007,
due to a one-time payment received pursuant to a participating arrangement for a
mortgage loan that was repaid in the first quarter of 2007.  There
were no such fees received during 2008.
 
 Expenses
  (dollars
      in thousands)
              
              Three
      Months Ended
              
              %
      Change
                from
      Prior
                Period
              
              %
      of Total
                2008
                Revenues
              
              %
      of Total
                2007
                RevenuesMarch
      31,
                2008
              
              March
      31,
                2007Interest
              
              $
              7,997
              
              $
              8,495
              
              (5.9
              )%
              74.8
              %
              68.0
              %Interest
      – distributions to preferred shareholders
              
              
              547
              
              
              569
              
              (3.9
              )
              5.1
              
              4.5General
      and administrative
              
              
              963
              
              
              605
              
              59.2
              
              9.0
              
              4.9Impairment
      of investments
              
              
              26,498
              
              
              --
              
              100.0
              
              248.0
              
              --Fees
      to Advisor and affiliates
              
              
              733
              
              
              968
              
              (24.3
              )
              6.9
              
              7.7Amortization
      and other
              
              
              242
              
              
              200
              
              21.0
              
              2.3
              
              1.6Total
      expenses
              
              $
              36,980
              
              $
              10,837
              
              241.2
              %
              346.1
              %
              86.7
              %
 Interest
expense decreased for the three months ended March 31, 2008, as compared to
2007, primarily due to the repayments on our repurchase facilities due to margin
calls and our warehouse facility due to its termination in
2007.  Information related to our debt is as follows:
  -
20 -
   Three
      Months Ended
              March
      31,(dollars in thousands)
            
            2008
            
            2007Average
      outstanding
            
            $
            559,958
            
            $
            639,165Weighted
      average interest rate
              (including
      effect of interest rate swaps)
            
            
            6.03
            %
            
            5.67
            %Average
      notional amount of interest rate swaps
            
            $
            371,081
            
            $
            583,692Weighted
      average fixed rate of interest rate swaps
            
            
            5.38
            %
            
            5.17
            %
 
 
 General
and administrative expenses increased for the three months ended March 31, 2008,
as compared to 2007 due to advisory costs incurred in 2008 related to consulting
work performed to analyze strategic investment alternatives for the
Company.  These increases were partially offset by fewer legal costs
incurred during 2008 (as costs in 2007 were related to increased work on
specially serviced assets) and decreased insurance costs.
 
 Impairment
of investments during 2008 relates to charges for two mortgage loans in our
specially serviced portfolio due to deteriorating operating performance and from
declines in market values of our available-for-sale CMBS
investments.  As the current credit environment may impede our ability
to hold the CMBS investments until recovery, the declines in fair value are
considered other-than-temporary impairment.
 Fees to
Advisor and affiliates decreased for the 2008 period, as compared to 2007, due
to lower asset management fees paid to our Advisor during the first quarter of
2008, as a result of lower equity balances, the base on which the fees are
calculated.
 
 Amortization
and other costs increased for the 2008 periods, as compared to the same periods
in 2007, due to the accelerated amortization of deferred financing costs related
to swap contracts terminated during 2008.
  Other
Losses
 
 (dollars
      in thousands)
              
              Three
      Months Ended
              
              %
      Change from Prior Period
              
              %
      of Total 2008
                Revenues
              
              %
      of Total 2007
                RevenuesMarch
      31, 2008
              
              March
      31, 2007Change
      in fair value and loss on termination of derivative
      instruments
              
              $
              (2,640
              )
              $
              (31
              )
              NM
              %
              (24.7
              )%
              (0.2
              )%Loss
      on sale or repayment of investments
              
              
              (39
              )
              
              --
              
              100.0
              
              (0.4
              )
              --Total
      expenses
              
              $
              (2,679
              )
              $
              (31
              )
              NM
              %
              (25.1
              )%
              (0.2
              )%
 
 NM = Not
meaningful as change is 1000% or greater.
   During
2008, we terminated certain swap contracts resulting in $7.5 million of
termination costs, of which $2.6 million are recorded in “other losses” in
2008.  The balance in 2007 relates to the change in the fair value of
free-standing derivatives.
 
 Funds from
Operations
 
 Funds
from operations (“FFO”) represents net income or loss (computed in accordance
with GAAP), excluding gains or losses from sales of property, excluding
depreciation and amortization related to real property and including funds from
operations for unconsolidated joint ventures calculated on the same
basis.  FFO is calculated in accordance with the National Association
of Real Estate Investment Trusts (“NAREIT”) definition.  FFO does not
represent cash generated from operating activities in accordance with GAAP and
is not necessarily indicative of cash available to fund cash
needs.  FFO should not be considered as an alternative to net income
as an indicator of our operating performance or as an alternative to cash flows
as a measure of liquidity. Our management considers FFO a supplemental measure
of operating performance, and, along with cash flows from operating activities,
financing activities and investing activities, it provides management and
investors with an indication of our ability to incur and service debt, make
capital expenditures and fund other cash needs.  Since not all
companies calculate FFO in a similar fashion, our calculation presented below
may not be comparable to similarly titled measures reported by other
companies.
  -
21 -
  The
following table reconciles net (loss) income to FFO for the three months ended
March 31, 2008 and 2007:
  Three
      Months Ended
                March
      31,(dollars
      in thousands)
              
              2008
              
              
              2007Net
      (loss) income
              
              $
              (28,974
              )
              
              $
              5,164Add
      back: depreciation of real property (1)
              
              
              --
              
              
              
              336Less:
      gain on sale of real property (1)
              
              
              --
              
              
              
              (3,611
              )FFO
              
              $
              (28,974
              )
              
              $
              1,889Cash
      flows from:Operating
      activities
              
              $
              373
              
              
              $
              1,629Investing
      activities
              
              $
              64,501
              
              
              $
              (84,328
              )Financing
      activities
              
              $
              (63,477
              )
              
              $
              89,654Weighted
      average shares outstanding:Basic
      and diluted
              
              
              8,433
              
              
              
              8,402(1)    
      Related to properties sold during 2007 and included in discontinued
      operations in our condensed consolidated statements of
      operations.
  
 Liquidity and Capital
Resources
 
 Market
Factors
 
 During
2007 and 2008, developments in the market for many types of commercial mortgage
products have resulted in reduced liquidity for these assets.  Declining
interest rates coupled with significantly widening credit spreads have led to
reduced values and the inability to find adequate financing for these
assets.  This has resulted in an overall reduction in liquidity across
the credit spectrum of commercial mortgage products.  Because of this
we have suspended most investment activity, decided not to pursue a second CDO
securitization and terminated a repurchase facility used to finance our
investment activity prior to securitization (see “Repurchase Facilities”
discussion below).  As a result, we are currently carrying out a plan,
in accordance with the termination agreement for this facility, to sell our
existing assets that collateralize this facility.
 
 As market
conditions fluctuate, we will continue to evaluate strategies that could require
us to sell additional assets and extinguish any related debt obligations that
are secured by these assets.  By repaying most of our debt
obligations, we believe we can regain adequate financing when market conditions
improve to actively pursue investment strategies.  However, factors
outside of our control, such as the continuing uncertainty of the credit
markets, could further restrict our liquidity.
 
 Absent
significant margin calls and further deterioration of the credit markets, we
expect that cash generated through sales of assets that collateralize our debt
obligations, interest receipts from our remaining investments, as well as our
borrowing capacity, will be sufficient to meet our needs for short-term
liquidity, to pay all expenses and to make distributions to our preferred
shareholders.  In order to qualify as a REIT under the Code, we must,
among other things, distribute at least 90% of our taxable income (see Note 13
of our condensed consolidated financial statements).  We believe that
we are in compliance with the REIT-related provisions of the Code.
 
 Sources
of Funds
 
 As of
March 31, 2008, our credit facilities consisted of repurchase facilities and a
related party line of credit.  We had $1.2 million available to borrow
from our related party line of credit, subject to Centerline’s approval (see
"Related Party Line of Credit" below).
 
 Repurchase
Facilities
 
 Under our
repurchase agreements we pledge additional assets as collateral to our
repurchase agreement counterparties (lenders) when the estimated fair value of
the existing pledged collateral under such agreements declines and such lenders
demand additional collateral or repayment of debt (i.e., a margin call). Margin
calls result from a decline in the value of our investments collateralizing our
repurchase agreements, generally due to changes in the estimated fair value of
such investments. This could result from principal reduction of such investments
due to scheduled amortization payments or unscheduled principal prepayments on
the mortgages underlying our investments, changes in market interest rates and
other market factors. To cover a margin call, we may pledge additional
securities or sell additional assets to repay borrowings.
  -
22 -
  For the
quarter ended March 31, 2008, there were net cash payments of $12.5 million due
to margin calls/margin receipts on our repurchase facilities.  Should
market interest rates and/or prepayment speeds on our investments continue to
increase, margin calls on our repurchase agreements could substantially
increase, causing an adverse change in our liquidity position and
strategy.  The sources mentioned above may not be sufficient to meet
our obligations, including margin calls, as they are due.  As a
result, further margin calls may result in additional asset sales.
 
 At March
31, 2008, the following repurchase facilities were in place, categorized by
lending institution:
 
 ·
            Citigroup
      Facility
 
 During
December 2006, we executed a repurchase agreement with Citigroup for the purpose
of funding investment activity for a planned second CDO
securitization.  In October 2007, for the reasons mentioned above, we
decided not to pursue that CDO securitization.  In connection with
that determination, we entered into an agreement to terminate our Citigroup
repurchase facility on May 31, 2008.  While it is our intent to sell
or refinance the remaining assets before May 31, 2008, we are currently in
negotiations with Citigroup to extend the maturity date of this facility or
provide a new credit line that would replace this facility and provide
additional financing for future needs.
 
 At March
31, 2008, advance rates on the borrowings remaining on this facility, range from
80% to 90% of collateral value.  Interest on the borrowings, which
ranges from 30-day LIBOR plus 0.60% to 30-day LIBOR plus 1.25%, was also
determined on an asset-by-asset basis.  At March 31, 2008, we had
$37.0 million of borrowings outstanding under this facility (including $17.3
million of cash held in escrow at Citigroup) at a weighted average interest rate
of 5.14%.  With respect to assets pledged as collateral for the
Citigroup facility, and in accordance with the termination agreement, we are
currently carrying out a plan to sell or refinance the assets collateralizing
this facility utilizing our other repurchase facilities (see Note 2 and Note 8
to our condensed consolidated financial statements).
 
 ·
            Bear
      Stearns Facility
 
 During
2007, we executed a repurchase agreement with Bear Stearns for the purpose of
financing our investment activity.  At March 31, 2008, advance rates
on borrowings from this facility were at 70% of the collateral value, and
interest on the borrowings ranged from 30-day LIBOR plus 1.00% to 30-day LIBOR
plus 2.00%, as determined on an asset-by-asset basis.  The borrowings
are subject to 30-day settlement terms.  At March 31, 2008, we had
$42.5 million of borrowings outstanding under this facility at a weighted
average interest rate of 4.33% (see Note 8 to our condensed consolidated
financial statements).
 
 ·
            Banc
      of America Facility
 
 During
the third quarter of 2007, we executed a repurchase agreement with Banc of
America to provide financing for investments in mezzanine loans and subordinated
notes.  There were no outstanding amounts on this facility as of March
31, 2008.  Advance rates on borrowings, which will be determined on an
asset-by-asset basis, will be subject to 30-day settlement
terms.  Interest rates on the borrowings will be based on 30-day LIBOR
and will also be determined on an asset-by-asset basis.
 
 For
information regarding the amount of borrowings and the amounts of hedged debt on
our repurchase facilities secured by our investments, see Note 2 to the
condensed consolidated financial statements.
 
 Related Party Line of
Credit
 
 We
finance our remaining investing and operating activity primarily through
borrowings from a credit facility we maintain with Centerline.  This
$80.0 million facility offers borrowing rates of 30-day LIBOR plus
3.00%.  As of March 31, 2008, the amount outstanding was $78.8 million
with an interest rate of 5.70%.
 
 We have
covenant compliance requirements on our related party line of
credit.  As of March 31, 2008, we failed to meet certain of these
requirements, causing us to be in default of the loan
agreement.  While we have not been called upon to repay this facility,
there can be no assurance that we will not be, nor whether we will be able to
extend the facility upon expiration.
 
 Other
Financing
 
 During
2005, we issued $25.0 million of variable rate preferred securities through a
wholly-owned subsidiary.  At March 31, 2008, the weighted average
interest rate was 4.97%, including the effect of interest rate
hedges.
 
 In 2006,
we executed a CDO securitization.  At March 31, 2008, we had
outstanding CDO securitization certificates totaling $362.0 million at a
weighted average rate of 5.23%, including the effect of interest rate
hedges.
  -
23 -
  We have
capacity to raise $153.0 million of additional funds by issuing either common or
preferred shares pursuant to a shelf registration statement filed with the SEC.
If market conditions warrant, we may seek to raise additional funds for
investment through further offerings, although the timing and amount of such
offerings cannot be determined at this time.
 
 Summary
of Cash Flows
 
 Three
      Months Ended
              March
      31,2008
            
            2007
            
            Dollar
      Change
            
            Percent
      ChangeCash
      flows provided by (used in):Operating
      activities
            
            $
            373
            
            $
            1,629
            
            $
            (1,256
            )
            (77.1
            )%Investing
      activities
            
            
            64,501
            
            
            (84,328
            )
            
            148,829
            
            (176.5
            )Financing
      activities
            
            
            (63,477
            )
            
            89,654
            
            
            (153,131
            )
            (170.8
            )Net
      increase in cash and cash equivalents
            
            $
            1,397
            
            $
            6,955
            
            $
            (5,558
            )
            79.9
            %NM
      = Not meaningful as change is 1000% or greater.
 
 
 The
decrease in operating cash flows was caused primarily by a decrease in net
income adjusted for certain non-cash charges.  As much of the net loss
in the 2008 period was caused by non-cash charges (such as fair value changes in
interest rate derivatives and impairment charges), those amounts are excluded
from the calculation of operating cash flows.
 
 The
increase in net cash from investing activities was due to proceeds received from
the sale of mortgage loans as well as the absence of investment activity in 2008
compared to a large amount of investment volume in 2007.
 
 The
decrease in net cash from financing activities can be attributed to the decrease
in the level of investing activity (less investment activity to finance) during
the 2008 period as compared to the 2007 period, as well as a significant amount
of repayments on our repurchase facilities and payments made to terminate
certain swap contracts during 2008.
 
 Liquidity
Requirements after March 31, 2008
 
 For the
period from April 1, 2008 through May 7, 2008, we paid $5.6 million due to
margin calls on our repurchase facilities.
 
 During
April 2008, preferred dividends of $0.3 million (0.453 per share), declared in
March 2008, were paid to preferred shareholders.
 
 As we
sell or refinance assets pledged as collateral for our Citigroup repurchase
facility (see Sources of Funds
- Repurchase
Facilities above), we may, with the approval of Centerline, draw upon our
related party line of credit or seek alternative sources of funds to cover any
difference between the outstanding balance of that facility and the proceeds of
assets sold or refinanced.
 
 Absent
significant margin calls, we expect that cash generated from normal operations,
principally interest from our investments, will meet our short-term operating
needs.  Market conditions have continued to deteriorate in 2008,
causing us to fund additional margin requirements with our repurchase facility
lenders.  If market conditions become worse, we may be called upon to
fund more.  While these margin requirements cannot be quantified at
this time, we may not generate enough cash from operations or have adequate
availability under our existing debt facilities to cover these requirements, and
we may need to arrange alternative sources of financing or sell additional
assets that could result in additional losses to satisfy these cash
needs.
  Fair
Value Disclosures
  In
January 2008, we adopted SFAS 157 which defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements.  We have categorized our assets and liabilities recorded
at fair value based upon the fair value hierarchy, specified by SFAS 157, and
specifically our CMBS investments as “level 3” investments.  These
investments are publicly and privately traded bond issues backed by pools of
commercial real estate mortgages.  These securities are rated by
nationally recognized rating agencies.  There have been no downgrades
to these ratings for the quarter ended March 31, 2008 (see Note 4 of our
condensed consolidated financial statements for more information regarding the
CMBS investments and their ratings).
 During
2008, we recognized $25.5 million of impairments resulting from declines in
market values of these “level 3” investments.  See “Results of
Operations” above.
  -
24 -
 Other
Matters
 We are
not aware of any trends or events, commitments or uncertainties, not otherwise
disclosed, that will or are likely to impact liquidity in a material
way.
 
 Dividends
 
 The
following table outlines our total dividends and return of capital amounts,
determined in accordance with GAAP, for the three months ended March
31:
 
 (in
      thousands)
            
            2008
            
            2007Total
      preferred dividends
            
            $
            308
            
            $
            --Total
      common dividends
            
            $
            --
            
            $
            1,890Return
      of capital:Amount
            
            $
            308
            
            $
            --Per
      preferred share
            
            $
            0.45
            
            $
            --Percent
      of total dividends
            
            
            100.0
            %
            
            --
            %
 
 
 Commitments, Contingencies
and Off-Balance Sheet Arrangements
 
 See Note
17 to our condensed consolidated financial statements for a summary of our
guarantees and commitments and contingencies.
 
 We have
no unconsolidated subsidiaries, special purpose off-balance sheet financing
entities, or other off-balance sheet arrangements.
 
 Contractual
Obligations
 
 In
conducting business, we enter into various contractual obligations. Details of
these obligations, including expected settlement periods, are contained
below.
  Payments
      Due by Period(in
      thousands)
              
              Total
              
              
              Less
      than
                1
      Year
              
              
              1 –
      3 Years
              
              
              3 –
      5 Years
              
              
              More
      than
                5
      YearsDebt:CDO
      notes payable (1)(2)
              
              $
              362,000
              
              
              $
              --
              
              
              $
              --
              
              
              $
              --
              
              
              $
              362,000Repurchase
      facilities (1)(2)(3)
              
              
              79,561
              
              
              
              79,561
              
              
              
              --
              
              
              
              --
              
              
              
              --Line
      of credit – related party (1)(2)
              
              
              78,832
              
              
              
              78,832
              
              
              
              --
              
              
              
              --
              
              
              
              --Preferred
      shares of subsidiary (subject to mandatory repurchase)
    (1)(2)
              
              
              25,000
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              25,000Funding
      Commitments:Future
      funding loan commitments
              
              
              273
              
              
              
              273
              
              
              
              --
              
              
              
              --
              
              
              
              --Total
              
              $
              545,666
              
              
              $
              158,666
              
              
              $
              --
              
              
              $
              --
              
              
              $
              387,000
 
 (1)  
      The amounts included in each category reflect the current expiration,
      reset or renewal date of each facility or security certificate. Management
      believes we have the ability and the intent, to renew, refinance or
      remarket the borrowings beyond their current due dates.
                (2)  
      Includes principal amounts only.  At March 31, 2008, the
      weighted average interest rate on our debt was 3.90%.
                (3)  
      $37.0 million of this debt is related to a repurchase facility that was
      terminated in 2007.  See discussion in Sources of Funds -
      Repurchase
      Facilities above.
 -
25 -
 Forward-Looking
      Statements
 Certain
statements made in this report may constitute “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended. Such
forward-looking statements include statements regarding the intent, belief or
current expectations of us and our management (which includes our Advisor) and
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements. These factors, which are outlined in detail under
the heading “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the
year ended December 31, 2007, include, but are not limited to, the
following:
  ·
            Risks
      related to current liquidity which include, but are not limited
      to:
 
 ·
            Market
      volatility for mortgage products;
and
 
 ·
            The
      availability of financing for our
investments;
 
 ·
            Risks
      associated with the repurchase agreements we utilize to finance our
      investments and the ability to raise
capital;
 
 ·
            Risks
      related to repayment of our debt facilities if we fail to comply with
      certain covenants;
 
 ·
            Risks
      associated with CDO securitization transactions, which include, but are
      not limited to:
 
 ·
            The
      inability to acquire eligible investments for a CDO
    issuance;
 
 ·
            Interest
      rate fluctuations on variable-rate swaps entered into to hedge fixed-rate
      loans;
 
 ·
            The
      inability to find suitable replacement investments within reinvestment
      periods; and
 
 ·
            The
      negative impact on our cash flow that may result from the use of CDO
      financings with over-collateralization and interest coverage
      requirements;
 
 ·
            Risks
      associated with investments in real estate generally and the properties
      which secure many of our
investments;
 
 ·
            Risks
      of investing in non-investment grade commercial real estate
      investments;
 
 ·
            General
      economic conditions and economic conditions in the real estate markets
      specifically, particularly as they affect the value of our assets and the
      credit status of our borrowers;
 
 ·
            Dependence
      on our Advisor for all services necessary for our
    operations;
 
 ·
            Conflicts
      which may arise among us and other entities affiliated with our Advisor
      that have similar investment policies to ours;
  and
 
 ·
            Risks
      associated with the failure to qualify as a
  REIT.
 
 Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of this quarterly report. We expressly disclaim
any obligations or undertaking to release publicly any updates or revisions to
any forward-looking statements contained herein to reflect any change in our
expectations with regard thereto or change in events, conditions, or
circumstances on which such statement is based.
 
 
 Item
3. Quantitative and Qualitative Disclosures about Market Risk.
 
 Market
risk is the exposure to loss resulting from changes in interest rates and equity
prices.  The primary market risks to which we are exposed are interest
rate risk and credit spreads, which are highly sensitive to many factors,
including governmental monetary and tax policies, domestic and international
economic and political considerations and fluctuations in indices and other
factors beyond our control.
 
 Interest
Rate Risk
 
 Interest
rate fluctuations can adversely affect our income in many ways and present a
variety of risks, including the risk of mismatch between asset yields and
borrowing rates.
   -
26 -
   Our
operating results depend in large part on differences between the income from
our assets (net of credit losses) and our borrowing costs. Although we have
originated variable-rate loans, most of our assets generate fixed returns and
have terms in excess of five years. We fund the origination and acquisition of a
significant portion of our assets with borrowings that have variable interest
rates that reset relatively rapidly, such as weekly, monthly or quarterly. In
most cases, the income from assets will respond more slowly to interest rate
fluctuations than the cost of borrowings, creating a mismatch between asset
yields and borrowing rates. Consequently, changes in interest rates,
particularly short-term interest rates, may influence our net income. Our
borrowings under our related party line of credit, repurchase facilities and our
subsidiary’s preferred securities subject to mandatory redemption bear interest
at rates that fluctuate with LIBOR.
 
 Various
financial vehicles exist which would allow our management to mitigate the impact
of interest rate fluctuations on our cash flows and earnings. We enter into
certain hedging transactions to protect our positions from interest rate
fluctuations and other changes in market conditions. These transactions include
interest rate swaps and fair value hedges. Interest
rate swaps are entered into in order to hedge against increases in floating
rates on our repurchase facilities. Fair value hedges are entered into for some
of our investments to hedge our risk that interest rates may affect the fair
value of these investments, prior to securitization.
 
 Based on
the $545.4 million of borrowings outstanding at March 31, 2008, of which $174.3
million was unhedged, a 1% change in LIBOR would impact our annual net income
and cash flows by $1.1 million, including the impact on variable-rate
assets.  In addition, a change in LIBOR could also impede the
collections of interest on our variable-rate loans, as there might not be
sufficient cash flow at the properties securing such loans to pay the increased
debt service. Because the value of our debt securities fluctuates with changes
in interest rates, rate fluctuations will also affect the market value of our
net assets.
 
 Credit
Spread and Margin Risk
 
 Credit
spreads measure the yield demanded on loans and securities by the market based
on their credit relative to U.S. Treasuries, for fixed-rate credit, or LIBOR,
for floating rate credit.  Our fixed-rate loans and securities are
valued based on a market credit spread over the rate payable on fixed-rate U.S.
Treasuries of like maturity.  Our variable-rate investments are valued
based on a market credit spread over LIBOR.  Excessive supply of such
loans and securities combined with reduced demand will generally cause the
market to require a higher yield on such loans and securities, resulting in the
use of higher (or “wider”) spread over the benchmark rate to value
them.
 
 Widening
credit spreads would result in higher yields being required by the marketplace
on loans and securities.  This widening would reduce the value of the
loans and securities we hold at the time because higher required yields result
in lower prices on existing securities in order to adjust their yields upward to
meet the market.
 
 As of
March 31, 2008, a 100 basis point movement in credit spreads would decrease the
book value of the applicable assets by approximately 4.5%.  Under the
terms of our repurchase agreements, when the estimated fair value of the
existing collateral declines, the lenders may demand additional collateral or
repayment of debt (i.e., a margin call).  This could result from
principal reductions due to scheduled amortization payments, unscheduled
principal prepayments on the mortgages underlying our investments, changes in
market interest rates and other market factors.
 
 Should
market interest rates and/or credit spreads on our investments continue to
increase, margin calls on our repurchase agreements could substantially
increase, causing an adverse change in our liquidity position and
strategy.  The sources mentioned above may not be sufficient to meet
our obligations, including margin calls, as they come due; as a result, further
margin calls may result in additional asset sales.
 
 We expect
that cash generated from normal operations, principally interest from our
investments, will meet our short-term operating needs; however, if market
conditions remain the same or become worse, we may be called upon to fund
additional requirements with our repurchase facility lenders.  While
these margin requirements cannot be quantified at this time, as advance rates
and spreads may vary, we may not generate enough cash from operations or have
adequate availability under our existing debt facilities to cover these
requirements, and may need to sell additional assets to satisfy these cash
needs.
 
 
  -
27 -
   Item
4.    Controls and Procedures.
 
 (a)
              Evaluation of Disclosure
      Controls and
Procedures
 
 Our Chief
Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) or Rule 15a-15(e) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the
period covered by this quarterly report. Based on such evaluation, such officers
have concluded that our disclosure controls and procedures as of the end of the
period covered by this quarterly report were effective to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC rules and forms, and to ensure that such
information is accumulated and communicated to our management, including the
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.
 
 (b)
              Internal Control over
      Financial Reporting
 
 There
were no changes in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the
quarter ended March 31, 2008, that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
   
 - 28
-
   PART
II.  OTHER INFORMATION
  Item
      1.
              Legal
      Proceedings.We
      are not party to any pending material legal
proceedings.Item
      1A.
              Risk
      Factors.There
      have been no material changes to the risk factors as disclosed in our
      annual report on Form 10-K for the year ended December 31,
      2007.Item
      2.
              Unregistered Sales of Equity
      Securities and Use of Proceeds.NoneItem
      3.
              Defaults upon Senior
      Securities.NoneItem
      4.
              Submission
      of Matters to a Vote of Security
  Holders.  NoneItem
      5.
              Other
      Information.NoneItem
      6.
              Exhibits.31.1
              Certification
      of the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.*31.2
              Certification
      of the Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.*32.1
              Certification
      of the Chief Executive Officer and the Chief Financial Officer pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002.**
              Filed
      herewith.
  -
29 -
   SIGNATURES
 
 
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
 
 
 
 AMERICAN
MORTGAGE ACCEPTANCE COMPANY
 (Registrant)
 
 
 
 Date:
            
            May
      9, 2008
            
            By:
            
            /s/ James L. DugginsJames
      L. Duggins
              Chief
      Executive Officer
              (Principal
      Executive Officer)Date:
            
            May
      9, 2008
            
            By:
            
            /s/ Robert L. LevyRobert
      L. Levy
              Chief
      Financial Officer
              (Principal
      Financial Officer and Principal Accounting
  Officer)
 
 
 
  - 30
-