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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



FORM 10-Q



QUARTERLY REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934



(Mark One)

|þ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended September 30, 2005



OR



| ̈ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------



For the period from
 to



Commission File Number: 001-11981



MUNICIPAL MORTGAGE & EQUITY, LLC

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 52-1449733                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|621 E. Pratt Street, Suite 300 Baltimore, Maryland             |  | 21202-3140                          
|(Address of principal executive offices)                       |  | (Zip Code)                          



(443) 263-2900

(Registrants telephone number, including area 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. þ Yes ̈No



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act). Yes þ    No ̈



Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act.): Yes ̈No þ



The Registrant had 38,135,023 common shares outstanding as of
November 1, 2005.



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Municipal Mortgage & Equity, LLC



INDEX TO FORM 10-Q



|                               |  |                                                                                       |  |   
|------------------------------ |  | ------------------------------------------------------------------------------------- |  | --
|Part I  Financial Information |  | 4                                                                                    
|                               |  |                                                                                      
|Item 1.                        |  | Financial Statements (Unaudited)                                                      |  | 4 
|                               |  |                                                                                      
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 31
|                               |  |                                                                                      
|Item 3.                        |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 46
|                               |  |                                                                                      
|Item 4.                        |  | Controls and Procedures                                                               |  | 46
|                               | 
|Part II  Other Information    |  | 47                                                                                   
|                               |  |                                                                                      
|Item 1.                        |  | Legal Proceedings                                                                     |  | 47
|                               |  |                                                                                      
|Item 2.                        |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 47
|                               |  |                                                                                      
|Item 3.                        |  | Defaults Upon Senior Securities                                                       |  | 47
|                               |  |                                                                                      
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                   |  | 47
|                               |  |                                                                                      
|Item 5.                        |  | Other Information                                                                     |  | 47
|                               |  |                                                                                      
|Item 6.                        |  | Exhibits                                                                              |  | 48



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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS



The disclosure in this Quarterly Report on Form 10-Q (this Quarterly
Report) contains some forward looking statements intended to qualify for the safe harbor contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the
Exchange Act). Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements
may include words such as anticipate, estimate, expect, project, intend, plan, believe and other words and terms of similar meaning in connection with any discussion
of future operating or financial performance. Examples of forward-looking statements in this Quarterly Report include: (a) the Companys expectations about the seasonality of its tax credit equity and tax exempt bond origination
businesses, (b) the Companys expectations as to the extension and/or renewal of certain of its credit facilities, (c) the Companys expectation about the funding sources for the payment of the deferred consideration and the
funding sources and amount of the contingent consideration for the acquisition of Glaser Financial Group, Inc., (d) the Companys expectations as to its short- and long-term financing needs and potential sources and (e) the
Companys expectation about its interest rate swap transactions.



Any or
all of our forward-looking statements in this Quarterly Report may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this
Quarterly Report will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially. Factors that may cause our plans, expectations, future financial condition and
results to change include, but are not limited to:



| |  |  | changes in or failure to comply with applicable tax laws;
| | - |  | ---------------------------------------------------------



| |  |  | the availability of capital to fund operations;
| | - |  | -----------------------------------------------



| |  |  | the performance of multifamily housing developments and other investments;
| | - |  | --------------------------------------------------------------------------



| |  |  | the ability to acquire new investments;
| | - |  | ---------------------------------------



| |  |  | changes in accounting principles generally accepted in the United States;
| | - |  | -------------------------------------------------------------------------



| |  |  | changes in demographic, general economic and business conditions, both nationally and in the regions in which we operate; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | other risk factors described by the Company in its current and periodic filings with the Securities and Exchange Commission (the SEC) pursuant to the Exchange
Act.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



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PART I  FINANCIAL INFORMATION



|Item 1. | Financial Statements (Unaudited).
|------- | ---------------------------------



4



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Municipal Mortgage & Equity, LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)



|                                                                                                                                                                                                                                                                                                       |  |                   |           |   |                  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                                                                                                                                                                                                                                       |  | September 30,2005 |           |   | December 31,2004 |  
|ASSETS                                                                                                                                                                                                                                                                                                 |  |                   |           |   |                  |   |           |  
|Tax-exempt bonds and interests in bond securitizations, net (Note 4)                                                                                                                                                                                                                                   |  | $                 | 1,339,385 |   |                  | $ | 1,275,748 |  
|Taxable bonds, net (Note 4)                                                                                                                                                                                                                                                                            |  |                   | 23,670    |   |                  |   | 9,205     |  
|Loans receivable, net (Note 5)                                                                                                                                                                                                                                                                         |  |                   | 687,331   |   |                  |   | 593,968   |  
|Loans receivable held for sale (Note 5)                                                                                                                                                                                                                                                                |  |                   | 45,868    |   |                  |   | 27,766    |  
|Investment in partnerships (Note 6)                                                                                                                                                                                                                                                                    |  |                   | 777,009   |   |                  |   | 827,273   |  
|Derivative financial instruments (Note 7)                                                                                                                                                                                                                                                              |  |                   | 3,292     |   |                  |   | 3,102     |  
|Cash and cash equivalents                                                                                                                                                                                                                                                                              |  |                   | 64,514    |   |                  |   | 92,881    |  
|Interest receivable                                                                                                                                                                                                                                                                                    |  |                   | 19,197    |   |                  |   | 18,368    |  
|Restricted assets (Note 8)                                                                                                                                                                                                                                                                             |  |                   | 114,078   |   |                  |   | 72,805    |  
|Other assets                                                                                                                                                                                                                                                                                           |  |                   | 73,518    |   |                  |   | 66,040    |  
|Land, building and equipment, net                                                                                                                                                                                                                                                                      |  |                   | 169,117   |   |                  |   | 182,773   |  
|Mortgage servicing rights, net                                                                                                                                                                                                                                                                         |  |                   | 67,056    |   |                  |   | 11,349    |  
|Goodwill                                                                                                                                                                                                                                                                                               |  |                   | 130,431   |   |                  |   | 106,609   |  
|Other intangibles                                                                                                                                                                                                                                                                                      |  |                   | 28,172    |   |                  |   | 22,443    |  
|                                                                                                                                                                                                                                                                                                       |  |                   |           |   |                  |   |           |  
|Total assets                                                                                                                                                                                                                                                                                           |  | $                 | 3,542,638 |   |                  | $ | 3,310,330 |  
|                                                                                                                                                                                                                                                                                                       |  |                   |           |   |                  |   |           |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                                                                                                                                   |  |                   |           |   |                  |   |           |  
|Notes payable (Note 9)                                                                                                                                                                                                                                                                                 |  | $                 | 887,415   |   |                  | $ | 880,224   |  
|Mortgage notes payable (Note 9)                                                                                                                                                                                                                                                                        |  |                   | 109,627   |   |                  |   | 132,237   |  
|Short-term debt (Note 9)                                                                                                                                                                                                                                                                               |  |                   | 484,059   |   |                  |   | 413,157   |  
|Long-term debt (Note 9)                                                                                                                                                                                                                                                                                |  |                   | 139,041   |   |                  |   | 164,014   |  
|Subordinate debentures (Note 10)                                                                                                                                                                                                                                                                       |  |                   | 172,750   |   |                  |   | 84,000    |  
|Preferred shares subject to mandatory redemption                                                                                                                                                                                                                                                       |  |                   | 168,000   |   |                  |   | 168,000   |  
|Tax credit equity guarantee liability (Note 11)                                                                                                                                                                                                                                                        |  |                   | 209,861   |   |                  |   | 186,778   |  
|Derivative financial instruments (Note 7)                                                                                                                                                                                                                                                              |  |                   | 2,861     |   |                  |   | 4,923     |  
|Accounts payable and accrued expenses                                                                                                                                                                                                                                                                  |  |                   | 29,224    |   |                  |   | 35,003    |  
|Interest payable                                                                                                                                                                                                                                                                                       |  |                   | 17,359    |   |                  |   | 19,266    |  
|Unearned revenue and other liabilities                                                                                                                                                                                                                                                                 |  |                   | 125,994   |   |                  |   | 74,176    |  
|                                                                                                                                                                                                                                                                                                       |  |                   |           |   |                  |   |           |  
|Total liabilities                                                                                                                                                                                                                                                                                      |  | $                 | 2,346,191 |   |                  | $ | 2,161,778 |  
|                                                                                                                                                                                                                                                                                                       |  |                   |           |   |                  |   |           |  
|Commitments and contingencies (Note 12)                                                                                                                                                                                                                                                                |  |                   |           |   |                  |   |           |  
|Minority interest in subsidiary companies                                                                                                                                                                                                                                                              |  |                   | 384,525   |   |                  |   | 404,586   |  
|Preferred shareholders equity in a subsidiary company, liquidation preference of $73,000 at September 30, 2005 and
December 31, 2004                                                                                                                                                                  |  |                   | 71,031    |   |                  |   | 71,031    |  
|Shareholders equity (Note 13):                                                                                                                                                                                                                                                                        |  |                   |           |   |                  |   |           |  
|Common shares, no par value (42,046,099 shares authorized, including 38,211,783 shares issued and outstanding, and 74,814 deferred shares at
September 30, 2005 and 39,471,099 shares authorized, including 35,179,884 shares issued and outstanding, and 58,114 deferred shares at December 31, 2004) |  |                   | 752,212   |   |                  |   | 681,227   |  
|Less common shares held in treasury at cost (181,015 and 124,715 shares at September 30, 2005 and December 31, 2004,
respectively)                                                                                                                                                                     |  |                   | (3,987    | ) |                  |   | (2,615    | )
|Less unearned compensation (deferred shares)                                                                                                                                                                                                                                                           |  |                   | (6,346    | ) |                  |   | (4,145    | )
|Accumulated other comprehensive loss                                                                                                                                                                                                                                                                   |  |                   | (988      | ) |                  |   | (1,532    | )
|                                                                                                                                                                                                                                                                                                       |  |                   |           |   |                  |   |           |  
|Total shareholders equity                                                                                                                                                                                                                                                                             |  |                   | 740,891   |   |                  |   | 672,935   |  
|                                                                                                                                                                                                                                                                                                       |  |                   |           |   |                  |   |           |  
|Total liabilities and shareholders equity                                                                                                                                                                                                                                                             |  | $                 | 3,542,638 |   |                  | $ | 3,310,330 |  
|                                                                                                                                                                                                                                                                                                       |  |                   |           |   |                  |   |           |  



The accompanying
notes are an integral part of these financial statements.



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Municipal Mortgage & Equity, LLC

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share and
per share data)

(unaudited)



|                                                                                                                                                                                                                           |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |          |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ------- | - | -------------------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | -------- | -
|                                                                                                                                                                                                                           |  | For the three monthsended September 30, |         |   | For the nine monthsended September 30, |  
|                                                                                                                                                                                                                           |  | 2005                                    |         |   | 2004                                   |   |         | 2005 |  |   | 2004    |  
|INCOME                                                                                                                                                                                                                     |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |          |  
|Interest income                                                                                                                                                                                                            |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |          |  
|Interest on bonds and interests in bond securitizations                                                                                                                                                                    |  | $                                       | 23,984  |   |                                        | $ | 22,765  |      |  | $ | 71,430  |   |  | $ | 63,609   |  
|Interest on loans                                                                                                                                                                                                          |  |                                         | 14,971  |   |                                        |   | 10,872  |      |  |   | 38,582  |   |  |   | 32,981   |  
|Interest on short-term investments                                                                                                                                                                                         |  |                                         | 1,606   |   |                                        |   | 1,338   |      |  |   | 3,087   |   |  |   | 4,004    |  
|                                                                                                                                                                                                                           |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |          |  
|Total interest income                                                                                                                                                                                                      |  |                                         | 40,561  |   |                                        |   | 34,975  |      |  |   | 113,099 |   |  |   | 100,594  |  
|                                                                                                                                                                                                                           |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |          |  
|Fee income                                                                                                                                                                                                                 |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |          |  
|Syndication fees                                                                                                                                                                                                           |  |                                         | 2,278   |   |                                        |   | 6,861   |      |  |   | 11,310  |   |  |   | 14,802   |  
|Origination and brokerage fees                                                                                                                                                                                             |  |                                         | 1,539   |   |                                        |   | 1,665   |      |  |   | 3,384   |   |  |   | 5,429    |  
|Guarantee fees                                                                                                                                                                                                             |  |                                         | 3,967   |   |                                        |   | 2,093   |      |  |   | 10,942  |   |  |   | 5,452    |  
|Asset management and advisory fees                                                                                                                                                                                         |  |                                         | 7,588   |   |                                        |   | 1,685   |      |  |   | 18,618  |   |  |   | 9,818    |  
|Loan servicing fees                                                                                                                                                                                                        |  |                                         | 3,450   |   |                                        |   | 1,059   |      |  |   | 6,022   |   |  |   | 3,316    |  
|Other income                                                                                                                                                                                                               |  |                                         | 2,883   |   |                                        |   | 813     |      |  |   | 5,647   |   |  |   | 3,371    |  
|                                                                                                                                                                                                                           |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |          |  
|Total fee income                                                                                                                                                                                                           |  |                                         | 21,705  |   |                                        |   | 14,176  |      |  |   | 55,923  |   |  |   | 42,188   |  
|                                                                                                                                                                                                                           |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |          |  
|Net rental income                                                                                                                                                                                                          |  |                                         | 4,828   |   |                                        |   | 5,151   |      |  |   | 16,950  |   |  |   | 10,290   |  
|                                                                                                                                                                                                                           |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |          |  
|Total income                                                                                                                                                                                                               |  |                                         | 67,094  |   |                                        |   | 54,302  |      |  |   | 185,972 |   |  |   | 153,072  |  
|                                                                                                                                                                                                                           |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |          |  
|EXPENSES                                                                                                                                                                                                                   |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |          |  
|Interest expense                                                                                                                                                                                                           |  |                                         | 19,907  |   |                                        |   | 16,937  |      |  |   | 55,726  |   |  |   | 49,304   |  
|Interest expense on debentures and preferred shares (Note 10)                                                                                                                                                              |  |                                         | 6,818   |   |                                        |   | 4,769   |      |  |   | 18,130  |   |  |   | 11,819   |  
|Salaries and benefits                                                                                                                                                                                                      |  |                                         | 22,227  |   |                                        |   | 17,759  |      |  |   | 59,915  |   |  |   | 53,742   |  
|General and administrative                                                                                                                                                                                                 |  |                                         | 6,179   |   |                                        |   | 7,148   |      |  |   | 22,895  |   |  |   | 17,390   |  
|Professional fees                                                                                                                                                                                                          |  |                                         | 2,615   |   |                                        |   | 2,464   |      |  |   | 7,959   |   |  |   | 6,673    |  
|Depreciation and amortization                                                                                                                                                                                              |  |                                         | 6,384   |   |                                        |   | 3,681   |      |  |   | 14,115  |   |  |   | 9,412    |  
|                                                                                                                                                                                                                           |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |          |  
|Total expenses                                                                                                                                                                                                             |  |                                         | 64,130  |   |                                        |   | 52,758  |      |  |   | 178,740 |   |  |   | 148,340  |  
|                                                                                                                                                                                                                           |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |          |  
|Net gain on sale of loans                                                                                                                                                                                                  |  |                                         | 4,796   |   |                                        |   | 406     |      |  |   | 5,761   |   |  |   | 2,816    |  
|Net gain (loss) on sale of tax-exempt investments                                                                                                                                                                          |  |                                         | 442     |   |                                        |   | (660    | )    |  |   | 6,515   |   |  |   | 545      |  
|Net gain on sale of investments in tax credit equity partnerships                                                                                                                                                          |  |                                         | 2,494   |   |                                        |   | 125     |      |  |   | 9,058   |   |  |   | 2,939    |  
|Net gain on deconsolidation of tax credit equity partnerships                                                                                                                                                              |  |                                         | 46      |   |                                        |   |        |      |  |   | 2,547   |   |  |   |         |  
|Net gain (loss) on derivatives                                                                                                                                                                                             |  |                                         | (1,563  | ) |                                        |   | (3,245  | )    |  |   | 1,419   |   |  |   | 18       |  
|Impairments and valuation allowances                                                                                                                                                                                       |  |                                         | (1,951  | ) |                                        |   | (2,646  | )    |  |   | (3,317  | ) |  |   | (3,376   | )
|Income before income tax benefit (expense), net loss allocable to minority interest, net losses from equity investments in partnerships,
discontinued operations and cumulative effect of a change in accounting principle |  |                                         | 7,228   |   |                                        |   | (4,476  | )    |  |   | 29,215  |   |  |   | 7,674    |  
|Income tax benefit (expense)                                                                                                                                                                                               |  |                                         | 865     |   |                                        |   | (73     | )    |  |   | (2,170  | ) |  |   | 2,264    |  
|Net loss allocable to minority interest                                                                                                                                                                                    |  |                                         | 13,135  |   |                                        |   | 52,000  |      |  |   | 74,048  |   |  |   | 128,790  |  
|Net losses from equity investments in partnerships                                                                                                                                                                         |  |                                         | (10,291 | ) |                                        |   | (46,754 | )    |  |   | (64,347 | ) |  |   | (128,676 | )
|                                                                                                                                                                                                                           |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |          |  
|Income from continuing operations                                                                                                                                                                                          |  |                                         | 10,937  |   |                                        |   | 697     |      |  |   | 36,746  |   |  |   | 10,052   |  
|Discontinued operations (Note 16)                                                                                                                                                                                          |  |                                         | 9,480   |   |                                        |   | 10,865  |      |  |   | 9,480   |   |  |   | 10,865   |  
|                                                                                                                                                                                                                           |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |          |  
|Income before cumulative effect of a change in accounting principle                                                                                                                                                        |  |                                         | 20,417  |   |                                        |   | 11,562  |      |  |   | 46,226  |   |  |   | 20,917   |  
|Cumulative effect of a change in accounting principle                                                                                                                                                                      |  |                                         |        |   |                                        |   |        |      |  |   |        |   |  |   | 520      |  
|                                                                                                                                                                                                                           |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |          |  
|Net income                                                                                                                                                                                                                 |  | $                                       | 20,417  |   |                                        | $ | 11,562  |      |  | $ | 46,226  |   |  | $ | 21,437   |  
|                                                                                                                                                                                                                           |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |          |  



(Continued)



The accompanying notes are an integral part of these
financial statements.



6



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##### Table of Contents

Municipal Mortgage & Equity, LLC

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share and
per share data)

(unaudited)



|                                                      |  |                                          |            |                                         |   |            |  |      |            |  |   |           
|----------------------------------------------------- |  | ---------------------------------------- | ---------- | --------------------------------------- | - | ---------- |  | ---- | ---------- |  | - | ----------
|                                                      |  | For the three months ended September 30, |            | For the nine months ended September 30,
|                                                      |  | 2005                                     |            | 2004                                    |   | 2005       |  | 2004
|Basic earnings per common share:                      |  |                                          |            |                                         |   |            |  |      |            |  |   |           
|Earnings from continuing operations                   |  | $                                        | 0.29       |                                         | $ | 0.02       |  | $    | 0.98       |  | $ | 0.29      
|Discontinued operations                               |  |                                          | 0.25       |                                         |   | 0.31       |  |      | 0.25       |  |   | 0.31      
|Cumulative effect of a change in accounting principle |  |                                          |           |                                         |   |           |  |      |           |  |   | 0.02      
|                                                      |  |                                          |            |                                         |   |            |  |      |            |  |   |           
|Basic earnings per common share                       |  | $                                        | 0.54       |                                         | $ | 0.33       |  | $    | 1.23       |  | $ | 0.62      
|                                                      |  |                                          |            |                                         |   |            |  |      |            |  |   |           
|Weighted average common shares outstanding            |  |                                          | 38,064,377 |                                         |   | 34,927,975 |  |      | 37,628,566 |  |   | 34,343,492
|Diluted earnings per common share:                    |  |                                          |            |                                         |   |            |  |      |            |  |   |           
|Earnings from continuing operations                   |  | $                                        | 0.28       |                                         | $ | 0.02       |  | $    | 0.96       |  | $ | 0.29      
|Discontinued operations                               |  |                                          | 0.24       |                                         |   | 0.31       |  |      | 0.25       |  |   | 0.31      
|Cumulative effect of a change in accounting principle |  |                                          |           |                                         |   |           |  |      |           |  |   | 0.02      
|                                                      |  |                                          |            |                                         |   |            |  |      |            |  |   |           
|Diluted earnings per common share                     |  | $                                        | 0.52       |                                         | $ | 0.33       |  | $    | 1.21       |  | $ | 0.62      
|                                                      |  |                                          |            |                                         |   |            |  |      |            |  |   |           
|Weighted average common shares outstanding            |  |                                          | 38,982,520 |                                         |   | 35,267,697 |  |      | 38,259,217 |  |   | 34,696,146



The accompanying
notes are an integral part of these financial statements.



7



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##### Table of Contents

Municipal Mortgage & Equity, LLC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)



|                                                             |  |                                         |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------ |  | --------------------------------------- | ------ | - | -------------------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                             |  | For the three months endedSeptember 30, |        |   | For the nine months endedSeptember 30, |  
|                                                             |  | 2005                                    |        |   | 2004                                   |   |        | 2005 |  |   | 2004   |  
|Net income                                                   |  | $                                       | 20,417 |   |                                        | $ | 11,562 |      |  | $ | 46,226 |   |  | $ | 21,437 |  
|Other comprehensive (loss) income:                           |  |                                         |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|Unrealized gains (losses) on investments:                    |  |                                         |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|Unrealized holding (losses) gains arising during the period  |  |                                         | (1,779 | ) |                                        |   | 8,519  |      |  |   | 7,059  |   |  |   | 4,113  |  
|Reclassification adjustment for gains included in net income |  |                                         | (442   | ) |                                        |   | (1,733 | )    |  |   | (6,515 | ) |  |   | (2,938 | )
|                                                             |  |                                         |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|Other comprehensive (loss) income                            |  |                                         | (2,221 | ) |                                        |   | 6,786  |      |  |   | 544    |   |  |   | 1,175  |  
|                                                             |  |                                         |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|Comprehensive income                                         |  | $                                       | 18,196 |   |                                        | $ | 18,348 |      |  | $ | 46,770 |   |  | $ | 22,612 |  
|                                                             |  |                                         |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  



The accompanying
notes are an integral part of these financial statements.



8



---

##### Table of Contents

Municipal Mortgage & Equity, LLC

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY

(in thousands,
except share data)

(unaudited)



|                                                                        |  |              |         |   |                |   |        |                      |  |   |                                            |   |  |       |        |   |  |   |         |  
|----------------------------------------------------------------------- |  | ------------ | ------- | - | -------------- | - | ------ | -------------------- |  | - | ------------------------------------------ | - |  | ----- | ------ | - |  | - | ------- | -
|                                                                        |  | CommonShares |         |   | TreasuryShares |   |        | UnearnedCompensation |  |   | AccumulatedOtherComprehensiveIncome (Loss) |   |  | Total |       
|Balance, January 1, 2005                                                |  | $            | 681,227 |   |                | $ | (2,615 | )                    |  | $ | (4,145                                     | ) |  | $     | (1,532 | ) |  | $ | 672,935 |  
|Net income                                                              |  |              | 46,226  |   |                |   |       |                      |  |   |                                           |   |  |       |       |   |  |   | 46,226  |  
|Unrealized gains on investments, net of reclassifications               |  |              |        |   |                |   |       |                      |  |   |                                           |   |  |       | 544    |   |  |   | 544     |  
|Distributions                                                           |  |              | (52,851 | ) |                |   |       |                      |  |   |                                           |   |  |       |       |   |  |   | (52,851 | )
|Purchase of treasury shares                                             |  |              |        |   |                |   | (1,372 | )                    |  |   |                                           |   |  |       |       |   |  |   | (1,372  | )
|Options exercised                                                       |  |              | 2,466   |   |                |   |       |                      |  |   |                                           |   |  |       |       |   |  |   | 2,466   |  
|Issuance of common shares                                               |  |              | 64,892  |   |                |   |       |                      |  |   |                                           |   |  |       |       |   |  |   | 64,892  |  
|Deferred shares issued under the Non-Employee Directors Share Plans    |  |              | 407     |   |                |   |       |                      |  |   |                                           |   |  |       |       |   |  |   | 407     |  
|Deferred share grants                                                   |  |              | 9,848   |   |                |   |       |                      |  |   | (9,848                                     | ) |  |       |       |   |  |   |        |  
|Amortization of deferred compensation                                   |  |              |        |   |                |   |       |                      |  |   | 7,647                                      |   |  |       |       |   |  |   | 7,647   |  
|Net tax expense from exercise of options and vesting of deferred shares |  |              | (3      | ) |                |   |       |                      |  |   |                                           |   |  |       |       |   |  |   | (3      | )
|                                                                        |  |              |         |   |                |   |        |                      |  |   |                                            |   |  |       |        |   |  |   |         |  
|Balance, September 30, 2005                                             |  | $            | 752,212 |   |                | $ | (3,987 | )                    |  | $ | (6,346                                     | ) |  | $     | (988   | ) |  | $ | 740,891 |  
|                                                                        |  |              |         |   |                |   |        |                      |  |   |                                            |   |  |       |        |   |  |   |         |  



|                                                                     |  |              |   |  |               
|-------------------------------------------------------------------- |  | ------------ | - |  | --------------
|                                                                     |  | CommonShares |   |  | TreasuryShares
|SHARE ACTIVITY:                                                      |  |              |   |  |               
|Balance, January 1, 2005                                             |  | 35,113,283   |   |  | 124,715       
|Options exercised                                                    |  | 141,450      |   |  |              
|Purchase of treasury shares                                          |  | (56,300      | ) |  | 56,300        
|Issuance of common shares                                            |  | 2,575,000    |   |  |              
|Issuance of common shares under employee share incentive plans       |  | 314,684      |   |  |              
|Deferred shares issued under the Non-Employee Directors Share Plans |  | 17,465       |   |  |              
|                                                                     |  |              |   |  |               
|Balance, September 30, 2005                                          |  | 38,105,582   |   |  | 181,015       
|                                                                     |  |              |   |  |               



The accompanying
notes are an integral part of these financial statements.



9



---

##### Table of Contents

Municipal Mortgage & Equity, LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



|                                                                                  |  |                                        |           |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | -------------------------------------- | --------- | - | ---- | - | -------- | -
|                                                                                  |  | For the nine months endedSeptember 30, |          
|                                                                                  |  | 2005                                   |           |   | 2004 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                              |  |                                        |           |   |      |   |          |  
|Net income                                                                        |  | $                                      | 46,226    |   |      | $ | 21,437   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                        |           |   |      |   |          |  
|Income allocated to subsidiary preferred shareholders                             |  |                                        | 2,837     |   |      |   |         |  
|Cumulative effect of a change in accounting principle                             |  |                                        |          |   |      |   | (520     | )
|Net holding gains on trading securities                                           |  |                                        | (2,252    | ) |      |   | (3,436   | )
|Impairments and valuation allowances related to investments                       |  |                                        | 4,203     |   |      |   | 3,376    |  
|Amortization of guarantee liability                                               |  |                                        | (7,761    | ) |      |   | (3,748   | )
|Net gain on sales, including discontinued operations                              |  |                                        | (30,814   | ) |      |   | (17,165  | )
|Net gain on deconsolidation of tax credit equity partnerships                     |  |                                        | (2,547    | ) |      |   |         |  
|Loss from investments in partnerships                                             |  |                                        | 64,347    |   |      |   | 127,985  |  
|Minority interest income                                                          |  |                                        | (76,885   | ) |      |   | (128,427 | )
|Net amortization of premiums, discounts and fees on investments                   |  |                                        | (7,321    | ) |      |   | (3,794   | )
|Depreciation, accretion and amortization                                          |  |                                        | 16,908    |   |      |   | 14,442   |  
|Deferred income taxes                                                             |  |                                        | (868      | ) |      |   | (3,021   | )
|Deferred share compensation expense                                               |  |                                        | 7,647     |   |      |   | 2,882    |  
|Common and deferred shares issued under the Non-Employee Directors Share Plans   |  |                                        | 407       |   |      |   | 245      |  
|Net change in assets and liabilities:                                             |  |                                        |           |   |      |   |          |  
|Increase in interest receivable                                                   |  |                                        | (817      | ) |      |   | (2,006   | )
|Decrease (increase) in other assets                                               |  |                                        | 2,625     |   |      |   | (15,266  | )
|Increase in accounts payable, accrued expenses and other liabilities              |  |                                        | 3,799     |   |      |   | 14,721   |  
|Decrease in loans held for sale                                                   |  |                                        | 10,234    |   |      |   | 12,553   |  
|                                                                                  |  |                                        |           |   |      |   |          |  
|Net cash provided by operating activities                                         |  |                                        | 29,968    |   |      |   | 20,258   |  
|                                                                                  |  |                                        |           |   |      |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                              |  |                                        |           |   |      |   |          |  
|Purchases of bonds and interests in bond securitizations                          |  |                                        | (259,408  | ) |      |   | (282,603 | )
|Loan originations                                                                 |  |                                        | (296,263  | ) |      |   | (243,900 | )
|Acquisition of assets and businesses, net of cash acquired                        |  |                                        | (58,587   | ) |      |   |         |  
|Purchases of property and equipment                                               |  |                                        | (11,490   | ) |      |   | (4,507   | )
|Net investment in restricted assets                                               |  |                                        | (53,734   | ) |      |   | 7,635    |  
|Principal payments received                                                       |  |                                        | 215,292   |   |      |   | 139,167  |  
|Proceeds from the sale of investments                                             |  |                                        | 198,335   |   |      |   | 110,517  |  
|Distributions received from investments in partnerships                           |  |                                        | 29,560    |   |      |   | 5,629    |  
|Net investments in partnerships                                                   |  |                                        | (304,220  | ) |      |   | (245,235 | )
|                                                                                  |  |                                        |           |   |      |   |          |  
|Net cash used in investing activities                                             |  |                                        | (540,515  | ) |      |   | (513,297 | )
|                                                                                  |  |                                        |           |   |      |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                              |  |                                        |           |   |      |   |          |  
|Borrowings from credit facilities                                                 |  |                                        | 1,000,327 |   |      |   | 924,886  |  
|Repayment of credit facilities                                                    |  |                                        | (980,296  | ) |      |   | (748,953 | )
|Proceeds from tax credit syndication investors                                    |  |                                        | 316,990   |   |      |   | 196,599  |  
|Proceeds from short-term debt                                                     |  |                                        | 285,005   |   |      |   | 57,220   |  
|Repayment of short-term debt                                                      |  |                                        | (214,103  | ) |      |   | (1,408   | )
|Proceeds from long-term debt                                                      |  |                                        | 107,827   |   |      |   | 85,140   |  
|Repayment of long-term debt                                                       |  |                                        | (44,056   | ) |      |   | (16,555  | )
|Purchase of treasury shares                                                       |  |                                        | (1,372    | ) |      |   |         |  
|Issuance of common shares                                                         |  |                                        | 64,892    |   |      |   | 52,506   |  
|Proceeds from stock options exercised                                             |  |                                        | 2,466     |   |      |   | 3,576    |  
|Distributions to common shares                                                    |  |                                        | (52,851   | ) |      |   | (46,814  | )
|Distributions to preferred shareholders in a subsidiary company                   |  |                                        | (2,649    | ) |      |   |         |  
|                                                                                  |  |                                        |           |   |      |   |          |  
|Net cash provided by financing activities                                         |  |                                        | 482,180   |   |      |   | 506,197  |  
|                                                                                  |  |                                        |           |   |      |   |          |  
|Net (decrease) increase in cash and cash equivalents                              |  |                                        | (28,367   | ) |      |   | 13,158   |  
|Cash and cash equivalents at beginning of period                                  |  |                                        | 92,881    |   |      |   | 50,826   |  
|                                                                                  |  |                                        |           |   |      |   |          |  
|Cash and cash equivalents at end of period                                        |  | $                                      | 64,514    |   |      | $ | 63,984   |  
|                                                                                  |  |                                        |           |   |      |   |          |  



(Continued)



The accompanying notes are an integral part of these
financial statements.



10



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##### Table of Contents

Municipal Mortgage & Equity, LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



|                                                                    |  |                                         |         |      |   |          
|------------------------------------------------------------------- |  | --------------------------------------- | ------- | ---- | - | ---------
|                                                                    |  | For the nine months ended September 30,
|                                                                    |  | 2005                                    |         | 2004
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                   |  |                                         |         |      |   |          
|Interest paid                                                       |  | $                                       | 72,586  |      | $ | 60,039   
|                                                                    |  |                                         |         |      |   |          
|Income taxes paid                                                   |  | $                                       | 1,044   |      | $ | 4        
|                                                                    |  |                                         |         |      |   |          
|Non-cash activity related to VIEs under FIN 46:                     |  |                                         |         |      |   |          
|Loans receivable                                                    |  | $                                       | 11,461  |      | $ |         
|Investment in partnerships                                          |  |                                         | 225,177 |      |   | 1,265,623
|Restricted assets                                                   |  |                                         | 19,461  |      |   | 134,228  
|Other assets                                                        |  |                                         | 1,165   |      |   | 17,939   
|Land, building and equipment, net                                   |  |                                         | 18,949  |      |   | 166,360  
|Notes payable                                                       |  |                                         | 65,922  |      |   | 208,655  
|Mortgage notes payable                                              |  |                                         | 23,476  |      |   | 123,900  
|Accounts payable, accrued expenses and other liabilities            |  |                                         | 5,640   |      |   | 35,277   
|Minority interest in subsidiary companies                           |  |                                         | 181,175 |      |   | 1,179,915
|Accumulated other comprehensive income                              |  |                                         |        |      |   | 61       
|Non-cash investing and financing activities:                        |  |                                         |         |      |   |          
|Debt and other liabilities assumed in the acquisition of businesses |  |                                         | 89,935  |      |   |         



The accompanying
notes are an integral part of these financial statements.



11



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##### Table of Contents

Municipal Mortgage & Equity, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



NOTE 1BASIS OF PRESENTATION



Municipal Mortgage & Equity, LLC (MuniMae and, together with its
subsidiaries, the Company) provides debt and equity financing to developers of multifamily housing and other real estate investments. The Company invests in tax-exempt bonds, or interests in bonds, issued by state and local
governments or their agencies or authorities to finance multifamily housing developments. These tax-exempt bonds are not general obligations of state and local governments, or the agencies or authorities that issue the bonds; however, the
multifamily housing developments, as well as the rents paid by the tenants, typically secure these investments. The Company also invests in tax-exempt bonds, or interests in bonds, secured by student housing or assisted living developments; and
tax-exempt bonds issued by community development districts to finance the development of community infrastructure supporting single-family housing, mixed use and commercial developments and secured by specific payments or assessments pledged by the
local improvement district that issues the bonds (CDD bonds). Interest income derived from the majority of the Companys bond investments is exempt income for federal income tax purposes.



The Company also engages in real estate finance activities that generate income that is
includable for federal income tax purposes. These include the origination of, investment in and servicing of investments in multifamily housing, and sourcing, underwriting, structuring and managing of commercial real estate investments, both for the
Companys own account and on behalf of third parties. The Company is also a low-income housing tax credit syndicator, whereby it acquires and transfers to investors interests in partnerships that receive and distribute low-income housing tax
credits to investors. The Company earns syndication fees on the placement of these interests with investors. The Company also earns fees for providing guarantees on certain tax credit equity funds and for managing the low-income housing tax credit
equity funds it has syndicated.



MuniMae was organized in 1996 as a Delaware
limited liability company. As a limited liability company, the Company combines many of the limited liability, governance and management characteristics of a corporation with the pass-through income features of a partnership. Since MuniMae is
classified as a partnership for federal income tax purposes, MuniMae is not itself subject to federal and, in most cases, state and local income taxes. Instead, each shareholder must include his or her distributive share of MuniMaes income,
deductions and credits on the shareholders income tax return. Most of the Companys real estate finance and tax credit syndication activities are conducted through subsidiaries classified as corporations for federal income tax purposes.
These corporations do not have the pass-through income features of a partnership.



The condensed consolidated financial statements include the accounts of MuniMae, its wholly owned subsidiaries, its majority owned subsidiaries and variable interest entities (VIEs) where management determined that the
Company was the primary beneficiary of the VIE. All significant intercompany balances and transactions have been eliminated.



The results of consolidated operations for the three- and nine-month periods ended September 30, 2005, are not necessarily indicative of the results to be expected
for the full year. The operating results from the Companys tax credit equity syndication business are expected to fluctuate based on seasonal patterns. The highest production volumes from the tax credit business generally occur in the second
half of the fiscal year. However, corresponding increases in revenues are not necessarily the resulting effect as syndication revenues earned in association with consolidated tax credit equity funds are eliminated in consolidation. Seasonality in
tax-exempt bond originations generally results in higher volume in the second half of the fiscal year.



The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the SEC and, in the opinion of management, contain all adjustments (consisting
of only normal recurring accruals) necessary to present a fair statement of the results for the periods presented. These results have been determined on the basis of accounting principles and policies discussed in Note 1 to the financial statements
included in the Companys Annual Report on Form 10-K for the year ended December 31, 2004 (the Companys 2004 Form 10-K). Certain information and footnote disclosures normally included in financial statements
presented in accordance with generally accepted accounting principles in the United States of America (GAAP) have been condensed or omitted. The accompanying financial statements should be read in conjunction with the financial
statements and notes thereto included in the Companys 2004 Form 10-K. Certain 2004 amounts have been reclassified to conform to the 2005 presentation with no effect on previously reported net income or shareholders equity.



12



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##### Table of Contents

New Accounting Pronouncements



In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 123R, Share-Based Payment, a revision of SFAS No. 123, Accounting for Stock-Based Compensation and superseding APB Opinion No. 25, Accounting for Stock Issued to
Employees (SFAS 123R). SFAS 123R requires the Company to expense grants made under the share option and employee share purchase plan programs. The cost will be recognized over the vesting period of the applicable share
option or other share-based payment. In April 2005, the SEC approved a new rule for public companies that delays the effective date of SFAS 123R such that the Company must adopt it no later than January 1, 2006. Upon adoption of SFAS 123R,
amounts previously disclosed under SFAS No. 123 will be recorded in the consolidated statements of income. The Company is continuing to evaluate the impact of this standard and expects that implementation of SFAS No. 123R will have no
material effect on its reported financial condition or results of operations.



In June 2005, the FASB ratified the consensus in Emerging Issues Task Force (EITF) Issue No. 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or
Similar Entity When the Limited Partners Have Certain Rights (Issue 04-5), which provides guidance in determining whether a general partner controls a limited partnership. To promote consistency in applying this guidance to
corporate entities and those entities that hold real estate:



| |  |  | the EITF amended Issue No. 96-16, Investors Accounting for an Investee When the Investor Has a Majority of the Voting Interest but the Minority Interest Shareholder
or Shareholders Have Certain Approval or Veto Rights (Issue 96-16), and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the FASB staff issued FASB Staff Position (FSP) No. 78-9-1 (FSP 78-9-1), which amends the American Institute of Public Accountants
(AICPA) Statement of Position 78-9, Accounting for Investments in Real Estate Ventures, to reflect the consensus reached in Issue 04-5.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The effective date for applying the guidance in Issue 04-5 and FSP 78-9-1 (1) was June 29, 2005, for all new limited partnerships
and existing limited partnerships for which the partnership agreements are modified and (2) is no later than the beginning of the first reporting period in fiscal years beginning after December 15, 2005, for all other limited partnerships.
Thus far, the impact of Issue 04-5 has had no effect on the Companys financial statements. The Company will continue to evaluate the impact of Issue 04-5 throughout the remainder of 2005.



NOTE 2SHARE-BASED EMPLOYEE COMPENSATION



The Company accounts for both the non-employee director share plans and the employee share
incentive plans under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, since grants have been made at fair
value, no compensation expense has been recognized for the options issued under the plans for the nine months ended September 30, 2005 and 2004. SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure
(SFAS 148), requires the Company to make certain disclosures as if the compensation expense for the Companys plans had been determined based on the fair value on the date of grant for awards under those plans. Using the
Black Scholes option-pricing model, the Company estimated the fair value of each option awarded during the nine months ended September 30, 2005 and 2004 based on the fair value recognition provisions of statements of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation as amended by FAS 148. The estimated fair values of options awarded were de minimis and would have no impact on the earnings per share calculation for the three or nine
months ended September 30, 2005 and 2004.



NOTE 3ACQUISITIONS



On February 18, 2005, the Company purchased MONY Realty Capital,
Inc. (MRC) from AXA Financial, Inc. (AXA) for a total purchase cost of $10.9 million comprised of cash paid to AXA of $8.5 million, transaction costs of approximately $1.4 million and liabilities assumed of
approximately $1.0 million. The Company has accounted for this acquisition as a purchase and has allocated the purchase cost to tangible and identified intangible assets based on their fair values. The excess purchase cost over the fair values of
these assets has been recorded as goodwill. The Company allocated approximately $2.9 million to tangible assets (primarily investments in partnerships and receivables), $7.0 million to identifiable intangibles (primarily management advisory
contracts, mortgage servicing rights and customer relationship value) and approximately $0.9 million to goodwill.



Additionally, as part of the purchase agreement, the Company committed to invest $25.0 million in a real estate partnership in which MRC is already a general partner.
This interest was acquired by the Company upon its acquisition of MRC. The Company is required to invest the remainder of the $25.0 million commitment on or prior to the third anniversary of the closing date of the acquisition. As of
September 30, 2005, the Company had funded $9.2 million of its commitment.



13



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##### Table of Contents

On July 1, 2005, the Company completed the acquisition of all the outstanding capital stock of Glaser Financial
Group, Inc. (Glaser). Glaser was a full service commercial mortgage banker that arranged financing predominately in the upper Midwest for multifamily, senior housing and commercial real estate through Fannie Mae DUS, Freddie Mac,
HUD/FHA, conventional and conduit funding sources. The purchase price included a combination of cash and common shares and could total approximately $68.5 million assuming certain performance metrics are achieved. The initial portion of cash
purchase price was financed primarily through the sale of approximately $38.8 million in Trust Preferred Securities (see Note 10). The remainder of the initial cash purchase price was funded through cash on hand.



The Glaser acquisition has been accounted for as a purchase. The total purchase price,
excluding contingent consideration, was $63.5 million, which includes: (i) the initial cash purchase price of $50.0 million, (ii) three deferred payments of at least $4.0 million on each of the first three anniversaries of the closing date
(fair value of $10.2 million) (the Deferred Purchase Price), (iii) $1.0 million for reimbursement of additional working capital and (iv) capitalized acquisition costs of $0.5 million. Additionally, there is
contingent consideration that may be payable on the third anniversary of the closing date in the event that specified levels of operating performance are achieved. The contingent consideration was not recorded at the acquisition date as it will be
recorded once the contingency is resolved.



The Company allocated the purchase
price of its acquisition to the tangible assets, liabilities and identified intangible assets acquired based on their estimated fair values. The excess purchase price over those fair values is recorded as goodwill. Of the total purchase price for
Glaser, approximately $23.5 million was allocated to goodwill. The Deferred Purchase Price of $10.2 million is included in unearned revenue and other liabilities in the purchase price allocation below. The factors considered in allocating the
purchase price, including goodwill, included the Companys valuation, which focused on Glasers historical and projected cash flows as well as its business prospects and strategic value. The total purchase price is subject to adjustments
as the result of finalizing certain post-acquisition adjustments primarily related to the contingent consideration. The purchase price was allocated as follows:



|                                                        |  |   |        
|------------------------------------------------------- |  | - | -------
|(in thousands)                                          |  |  
|Assets                                                  |  |   |        
|Loans receivable held for sale                          |  | $ | 46,746 
|Cash and cash equivalents                               |  |   | 9,267  
|Other assets                                            |  |   | 963    
|Mortgage servicing rights, net                          |  |   | 53,968 
|Goodwill                                                |  |   | 23,504 
|Other intangibles                                       |  |   | 5,066  
|                                                        |  |   |        
|Total assets                                            |  | $ | 139,514
|                                                        |  |   |        
|Liabilities                                             |  |   |        
|Short-term debt                                         |  | $ | 53,267 
|Accounts payable, accrued expenses and interest payable |  |   | 986    
|Unearned revenue and other liabilities                  |  |   | 34,725 
|                                                        |  |   |        
|Total liabilities                                       |  | $ | 88,978 
|                                                        |  |   |        
|Net cash paid                                           |  | $ | 50,536 
|                                                        |  |   |        



Of the total purchase price,
approximately $5.1 million was allocated to intangible assets. Of this amount, $4.0 million relates to a license agreement with an indefinite life, $1.0 million relates to loans in process of origination, and $50,000 relates to non-compete
agreements. The license will be classified as an indefinite-lived asset, and therefore, will not be subject to amortization. Loans in the process of origination are amortized to net gain on sale of loans as the related transactions close, all of
which are expected to close within the next twelve months. The Company recognized amortization of $0.7 million for the period ended September 30, 2005 related to loans in process of origination.



14



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##### Table of Contents

The pro forma financial information reflects pro forma adjustments that are based upon available information and which
management believes is reasonable. The pro forma financial information does not necessarily reflect the results of operations or financial position of the Company that actually would have resulted had the acquisition occurred on the assumed date.
The pro forma financial information is based on historical results of the combined entities and is not necessarily indicative of results that will be achieved by the combined entities in the future. Some factors that may result in differences
between the pro forma financial information and actual results are: changes in the financial performance of the acquired businesses, synergy savings in the combined entity and the risk factors identified in the Companys periodic and current
reports filed pursuant to the Exchange Act.



The condensed consolidated
statements of income for the three and nine months ended September 30, 2005 include the results of operations of Glaser from the date of acquisition. The following table reflects the pro forma results of operations for the three and nine months
ended September 30, 2005 and 2004 as if the acquisition had been completed as of the beginning of the period presented:



|                                                   |  |                     |        |                    |   |                   |  |                   |         |  |   |        
|-------------------------------------------------- |  | ------------------- | ------ | ------------------ | - | ----------------- |  | ----------------- | ------- |  | - | -------
|                                                   |  | Three months ended, |        | Nine months ended,
|(in thousands, except per share data)              |  | September 30,2005   |        | September 30,2004  |   | September 30,2005 |  | September 30,2004
|Total income                                       |  | $                   | 67,094 |                    | $ | 58,538            |  | $                 | 192,969 |  | $ | 164,104
|Income from continuing operations                  |  | $                   | 11,401 |                    | $ | 1,907             |  | $                 | 35,949  |  | $ | 11,192 
|Net income                                         |  | $                   | 20,881 |                    | $ | 12,772            |  | $                 | 45,429  |  | $ | 22,577 
|Income from continuing operations per common share |  |                     |        |                    |   |                   |  |                   |         |  |   |        
|Basic                                              |  | $                   | 0.30   |                    | $ | 0.05              |  | $                 | 0.95    |  | $ | 0.33   
|Diluted                                            |  | $                   | 0.29   |                    | $ | 0.05              |  | $                 | 0.94    |  | $ | 0.33   
|Net income per common share                        |  |                     |        |                    |   |                   |  |                   |         |  |   |        
|Basic                                              |  | $                   | 0.55   |                    | $ | 0.37              |  | $                 | 1.20    |  | $ | 0.66   
|Diluted                                            |  | $                   | 0.54   |                    | $ | 0.36              |  | $                 | 1.19    |  | $ | 0.65   



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##### Table of Contents

NOTE 4TAX-EXEMPT BONDS, TAXABLE BONDS AND INTERESTS IN BOND SECURITIZATIONS



The Company originates investments in tax-exempt and taxable bonds both for its own account
and for others. Tax-exempt and taxable bonds are issued by state and local government authorities to finance multifamily housing developments or other types of real estate, including land infrastructure development. The multifamily bonds are secured
primarily by non-recourse mortgage loans on affordable and market rate multifamily housing, while the land infrastructure bonds are secured by property or sales tax liens and other assessments on the district. The Company also invests in tax-exempt
bonds, or interests in bonds, secured by student housing or assisted living developments.



The Companys sources of capital to fund these lending activities include proceeds from equity and debt offerings, securitizations, loans from warehousing facilities and lines of credit with banks, pension funds
and finance companies and cash on hand. The Company earns interest income from its investment in tax-exempt bonds and taxable bonds. The Company also earns origination, construction administration and servicing fees through subsidiaries, classified
as corporations for federal income tax purposes, for originating and servicing the bonds.



As of September 30, 2005 and December 31, 2004, the Company held tax-exempt bonds with a fair value of $1,339.4 million and $1,275.7 million, respectively, and taxable bonds with a fair value of $23.7
million and $9.2 million, respectively. The following tables summarize the bonds by type as of each such date.



|                                               |  |                    |           |               |   |                |  |                |        |  |            |         |   |  |   |          
|---------------------------------------------- |  | ------------------ | --------- | ------------- | - | -------------- |  | -------------- | ------ |  | ---------- | ------- | - |  | - | ---------
|                                               |  | September 30, 2005
|(in thousands)                                 |  | FaceAmount         |           | AmortizedCost |   | UnrealizedGain |  | UnrealizedLoss |        |  | Fair Value
|Non-participating tax-exempt bonds             |  | $                  | 1,185,105 |               | $ | 1,166,657      |  | $              | 27,807 |  | $          | (43,133 | ) |  | $ | 1,151,331
|Participating tax-exempt bonds                 |  |                    | 128,234   |               |   | 127,672        |  |                | 5,474  |  |            | (13,210 | ) |  |   | 119,936  
|Subordinate non-participating tax-exempt bonds |  |                    | 6,550     |               |   | 6,372          |  |                | 210    |  |            | (1,008  | ) |  |   | 5,574    
|Subordinate participating tax-exempt bonds     |  |                    | 60,530    |               |   | 35,799         |  |                | 23,643 |  |            | (345    | ) |  |   | 59,097   
|Interests in securitization trusts             |  |                    | 3,892     |               |   | 3,880          |  |                | 11     |  |            | (444    | ) |  |   | 3,447    
|Taxable bonds                                  |  |                    | 23,907    |               |   | 23,622         |  |                | 50     |  |            | (2      | ) |  |   | 23,670   
|                                               |  |                    |           |               |   |                |  |                |        |  |            |         |   |  |   |          
|Total                                          |  | $                  | 1,408,218 |               | $ | 1,364,002      |  | $              | 57,195 |  | $          | (58,142 | ) |  | $ | 1,363,055
|                                               |  |                    |           |               |   |                |  |                |        |  |            |         |   |  |   |          
|                                               | 
|                                               |  | December 31, 2004 
|(in thousands)                                 |  | FaceAmount         |           | AmortizedCost |   | UnrealizedGain |  | UnrealizedLoss |        |  | Fair Value
|Non-participating tax-exempt bonds             |  | $                  | 1,127,291 |               | $ | 1,102,554      |  | $              | 30,836 |  | $          | (44,156 | ) |  | $ | 1,089,234
|Participating tax-exempt bonds                 |  |                    | 128,484   |               |   | 127,853        |  |                | 5,515  |  |            | (10,923 | ) |  |   | 122,445  
|Subordinate non-participating tax-exempt bonds |  |                    | 6,562     |               |   | 6,383          |  |                | 184    |  |            | (936    | ) |  |   | 5,631    
|Subordinate participating tax-exempt bonds     |  |                    | 60,530    |               |   | 35,799         |  |                | 20,310 |  |            | (1,334  | ) |  |   | 54,775   
|Interests in securitization trusts             |  |                    | 4,698     |               |   | 4,687          |  |                | 36     |  |            | (1,060  | ) |  |   | 3,663    
|Taxable bonds                                  |  |                    | 9,489     |               |   | 9,205          |  |                |       |  |            |        |   |  |   | 9,205    
|                                               |  |                    |           |               |   |                |  |                |        |  |            |         |   |  |   |          
|Total                                          |  | $                  | 1,337,054 |               | $ | 1,286,481      |  | $              | 56,881 |  | $          | (58,409 | ) |  | $ | 1,284,953
|                                               |  |                    |           |               |   |                |  |                |        |  |            |         |   |  |   |          



During the nine months ended
September 30, 2005, the Company invested in tax-exempt bonds with a face amount of $247.0 million and a purchase price of $244.8 million. Of the total face amount of $247.0 million, $180.3 million represents the Companys new primary
investments (bonds which the Company originated) and $66.7 million reflects new secondary market investments (previously issued securities purchased from third parties).



16



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##### Table of Contents

The Company structures some tax-exempt bonds so that the borrower makes draws on the bonds throughout the construction
period (draw down bonds). In the year these bonds are originated, the total draws for the year are reported as new primary investments. The Company originated a face amount of $46.8 million in new draw down bonds during the nine
months ended September 30, 2005. The Company also funded additional draws of $39.0 million on existing tax-exempt draw down bonds, increasing the face amount of these bonds to $129.8 million as of September 30, 2005.



Nineteen tax-exempt bonds with an amortized cost of $182.5 million were redeemed or sold
during the nine months ended September 30, 2005. The Company recognized an aggregate gain of $6.5 million in connection with these redemptions and sales. Of the $182.5 million, seven bonds that were in a bond securitization and five bonds that
were wholly owned with an amortized cost of $130.7 million and $8.6 million, respectively, were redeemed during the nine months ended September 30, 2005, resulting in a gain totaling $4.9 million. Two bonds that were in a bond securitization,
four bonds that were wholly owned and one senior interest in a bond securitization with an amortized cost of $13.0 million, $28.7 million and $1.5 million, respectively, were sold during the nine months ended September 30, 2005, resulting
in a gain totaling $1.6 million.



In order to facilitate the securitization of
certain assets at higher leverage ratios than otherwise would be available to the Company without the posting of additional collateral, the Company has pledged additional bonds to various pools that act as collateral for senior interests in certain
securitization trusts. From time to time, the Company pledges bonds as collateral for letters of credit, lines of credit, warehouse lending arrangements, other investments and derivative agreements. In addition, at times the Company pledges
collateral when providing a guarantee in connection with the syndication of tax credit equity funds. At September 30, 2005 and December 31, 2004, the total carrying amount of the tax-exempt bonds pledged as collateral was $541.7 million
and $537.0 million, respectively. At September 30, 2005 and December 31, 2004, the total carrying amount of taxable bonds pledged as collateral was $22.0 million and $0, respectively.



During the nine months ended September 30, 2005, the Company recorded an
other-than-temporary impairment of $1.6 million on two tax-exempt bonds with an aggregate face amount of $10.0 million. During the nine months ended September 30, 2004, the Company recorded an other-than-temporary impairment of $3.3 million on
four tax-exempt bonds with an aggregate face amount of $25.4 million.



The
Company places delinquent bonds on non-accrual status for financial reporting purposes when collection of interest is in doubt, which is generally after 90 days of non-payment. At September 30, 2005 and December 31, 2004, there were
$162.9 million and $108.1 million (face value), respectively, of bonds on non-accrual status.



NOTE 5LOANS RECEIVABLE



The
Companys loans receivable and loans receivable held for sale consist primarily of construction loans, taxable permanent loans, taxable supplemental loans and other taxable loans. Supplemental loans include pre-development loans, bridge loans
and other loans. The following table summarizes loans receivable by loan type at September 30, 2005 and December 31, 2004.



|                          |  |                   |         |   |                  |   |         |  
|------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|(in thousands)            |  | September 30,2005 |         |   | December 31,2004 |  
|Loan Type:                |  |                   |         |   |                  |   |         |  
|Construction loans        |  | $                 | 525,962 |   |                  | $ | 503,745 |  
|Taxable permanent loans   |  |                   | 45,868  |   |                  |   | 27,766  |  
|Supplemental loans        |  |                   | 73,056  |   |                  |   | 62,079  |  
|Other taxable loans       |  |                   | 93,065  |   |                  |   | 31,104  |  
|                          |  |                   |         |   |                  |   |         |  
|                          |  |                   | 737,951 |   |                  |   | 624,694 |  
|                          |  |                   |         |   |                  |   |         |  
|Allowance for loan losses |  |                   | (4,752  | ) |                  |   | (2,960  | )
|                          |  |                   |         |   |                  |   |         |  
|Total                     |  | $                 | 733,199 |   |                  | $ | 621,734 |  
|                          |  |                   |         |   |                  |   |         |  



The Company had loans receivable held
for sale of $45.9 million and $27.8 million at September 30, 2005 and December 31, 2004, respectively. These loans committed for sale are sold to Federal National Mortgage Association (Fannie Mae), Government National
Mortgage Association (GNMA) and third party conduit lenders. The carrying values of these loans approximate their fair values.



The Company pledges loans as collateral for the Companys notes payable, warehouse lending arrangements and line of credit borrowings. In addition, in order to
facilitate the securitization of certain assets at higher leverage ratios than otherwise available to the Company without the posting of additional collateral, the Company has pledged additional taxable loans to a pool that acts as collateral for
senior interests in certain securitization trusts and credit enhancement facilities. At September 30, 2005 and December 31, 2004, the total carrying amount of the loans receivable pledged as collateral was $617.2 million and $548.0
million, respectively.



17



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##### Table of Contents

The Company places delinquent loans on non-accrual status for financial reporting purposes when collection of interest is
in doubt, which is generally after 90 days of non-payment. At September 30, 2005 and December 31, 2004, there were $67.3 million and $77.4 million (face value), respectively, of loans on non-accrual status.



NOTE 6INVESTMENT IN PARTNERSHIPS



The Companys investments in partnerships primarily consist of equity interests in real
estate operating partnerships and equity investments in income-producing real estate partnerships. The Companys investments in partnerships are accounted for using the equity method. The following table summarizes investments in partnerships
by major category at September 30, 2005 and December 31, 2004:



|                                                                 |  |                   |         |                  |   |        
|---------------------------------------------------------------- |  | ----------------- | ------- | ---------------- | - | -------
|(in thousands)                                                   |  | September 30,2005 |         | December 31,2004
|Non-guaranteed tax credit equity funds:                          |  |                   |         |                  |   |        
|Investment in real estate operating partnerships (1)             |  | $                 | 457,965 |                  | $ | 563,310
|Guaranteed tax credit equity funds:                              |  |                   |         |                  |   |        
|Investment in real estate operating partnerships (2)             |  |                   | 155,113 |                  |   | 149,078
|Investment in real estate operating partnershipswarehousing (3) |  |                   | 80,265  |                  |   | 43,873 
|Investment in CAPREIT (4)                                        |  |                   | 69,681  |                  |   | 70,351 
|Investments in real estate operating partnershipsMRC (5)        |  |                   | 10,777  |                  |   |       
|Other investments in partnerships (6)                            |  |                   | 3,208   |                  |   | 661    
|                                                                 |  |                   |         |                  |   |        
|                                                                 |  | $                 | 777,009 |                  | $ | 827,273
|                                                                 |  |                   |         |                  |   |        

---

|(1) | As a result of FASB Interpretation No. 46 (Revised) (FIN 46R), the Company must include on its balance sheet investments by certain non-guaranteed tax credit
equity funds. These funds invest in limited partnership interests in real estate operating partnerships (Project Partnerships).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | These investments are real estate operating partnerships owned by tax credit equity funds where the Company provides a guarantee or otherwise has continuing involvement in the
underlying assets of the fund. As a result of the guarantee, the Company includes the assets of the funds in its consolidated balance sheets until such time as the Companys guarantee expires.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | The Company acquires, through limited partnership interests, equity interests, which typically represent a 99.0% interest in properties expected to earn tax credits. When the
Company has a sufficient number of such limited partnership interests and has identified tax credit investors, it transfers those interests to a tax credit equity fund for the investors benefit. The Company typically owns these partnership
interests for three to nine months before they are transferred to a tax credit equity fund.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | The Company makes equity investments in income-producing real estate partnerships in joint ventures with CAPREIT, Inc. and its affiliates.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------



|(5) | The Company makes equity investments in income-producing real estate partnerships through MRC and its affiliates.
|--- | -----------------------------------------------------------------------------------------------------------------



|(6) | Other investments in partnerships primarily relate to a joint venture and other real estate investments from the Companys tax credit equity segment.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

NOTE 7DERIVATIVE FINANCIAL INSTRUMENTS



At September 30, 2005 and December 31, 2004, the Companys derivative financial instruments consisted of interest rate swaps,
put option contracts, total return swaps and loan commitments.



In March 2005,
the Company entered into a contractual arrangement whereby the counterparty to the arrangement will purchase tax-exempt bonds from the Company or a third party and hold the bonds for a minimum of 30 days. The Company will have the option to bid for
the purchase of the bonds at the time of sale by the counterparty. Regardless of whether the bonds are purchased by the Company or not, the Company will pay to the counterparty or receive from the counterparty amounts for any declines or increases
in the bonds market values from the date of purchase to the date of swap termination. The arrangement is considered a derivative transaction and is included in the balance of the total return swaps in the table below. The total maximum
notional amount of the swap is $50.0 million, based on the underlying value of the bonds held by the counterparty. The Company will receive a 1.50% annual fee on the outstanding notional amount of the swap. During the term of the swap, the Company
is required to post collateral equal to the amount by which the purchase price of the bond or bonds subject to the swap exceeds the quoted market value by more than $1.0 million. The arrangement has a maturity date of January 23, 2017. As of
September 30, 2005, the Company had two swaps outstanding under this arrangement with a total notional amount of $9.6 million.



In June 2005, the Company terminated interest rate swap contracts with a total notional amount of $35.0 million. The Company recorded a net gain of $1.5 million on the
termination of these interest rate swaps. In addition, the Company in conjunction with a new non-revolving term financing facility (see Note 9) entered into a new interest rate swap contract with a total notional amount of $18.4 million and an
effective date in July 2005. The total notional amount of this contract is expected to increase to $22.0 million in the fourth quarter of 2005. In addition to the above-mentioned interest rate swaps, the Company entered into two other interest rate
swaps with a total notional amount of $16.9 million in February 2005, and one additional interest rate swap with a notional amount of $75.0 million in September 2005.



The following table provides certain information with respect to the derivative financial instruments held by the Company at
September 30, 2005 and December 31, 2004:



|                                       |  |                    |         |                |                   |       |                 |   |                |   |                 |   |         |  |   |       |  |   |        |  
|-------------------------------------- |  | ------------------ | ------- | -------------- | ----------------- | ----- | --------------- | - | -------------- | - | --------------- | - | ------- |  | - | ----- |  | - | ------ | -
|                                       |  | September 30, 2005 |         |                | December 31, 2004 |      
|                                       |  | Notional Amount    |         | Fair Value (1) |                   |       | Notional Amount |   | Fair Value (1) |  
|(in thousands)                         |  |                    | Assets  |                | Liabilities (2)   |       |                 |   | Assets         |   | Liabilities (2) |  
|Interest rate swap agreements (3)      |  | $                  | 431,262 |                | $                 | 3,292 |                 | $ | (2,529         | ) |                 | $ | 286,015 |  | $ | 3,102 |  | $ | (4,878 | )
|Total return swaps (4)                 |  |                    | 32,760  |                |                   |      |                 |   | (103           | ) |                 |   | 38,200  |  |   |      |  |   |       |  
|Put option agreements (5)              |  |                    | 101,155 |                |                   |      |                 |   |               |   |                 |   | 105,610 |  |   |      |  |   | (45    | )
|Loan commitments (6)                   |  |                    | 74,369  |                |                   |      |                 |   | (229           | ) |                 |   |        |  |   |      |  |   |       |  
|                                       |  |                    |         |                |                   |       |                 |   |                |   |                 |   |         |  |   |       |  |   |        |  
|Total derivative financial instruments |  |                    |         |                | $                 | 3,292 |                 | $ | (2,861         | ) |                 |   |         |  | $ | 3,102 |  | $ | (4,923 | )
|                                       |  |                    |         |                |                   |       |                 |   |                |   |                 |   |         |  |   |       |  |   |        |  

---

|(1) | The amounts disclosed represent the net fair values of all the Companys derivatives at the reporting date.
|--- | -----------------------------------------------------------------------------------------------------------



|(2) | The aggregate negative fair value of the investments is included in liabilities for financial reporting purposes.
|--- | -----------------------------------------------------------------------------------------------------------------



|(3) | For the interest rate swap agreements, notional amount represents the total amount of the Companys interest rate swap contracts ($431,262 as of September 30, 2005 and
$320,975 as of December 31, 2004) less the total amount of the Companys reverse interest rate swap contracts ($0 as of September 30, 2005 and $34,960 as of December 31, 2004).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | For the total return swaps, the notional amount represents the total amount of the Companys total return swap contracts.
|--- | -------------------------------------------------------------------------------------------------------------------------



|(5) | For put option agreements, the notional amount represents the Companys aggregate obligation under the put option agreements.
|--- | -----------------------------------------------------------------------------------------------------------------------------



|(6) | Loan commitments represent agreements to replace construction loans with longer-term financing originated by the Company.
|--- | -------------------------------------------------------------------------------------------------------------------------



19



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##### Table of Contents

NOTE 8RESTRICTED ASSETS



Restricted assets includes cash and cash equivalents summarized by major category in the table below at September 30, 2005 and
December 31, 2004:



|                                           |  |                   |         |                  |   |       
|------------------------------------------ |  | ----------------- | ------- | ---------------- | - | ------
|(in thousands)                             |  | September 30,2005 |         | December 31,2004
|Tax credit equity fund cash (1)            |  | $                 | 71,779  |                  | $ | 49,069
|Margin call deposits (2)                   |  |                   | 2       |                  |   | 452   
|Collateral for securitization programs (3) |  |                   | 17,000  |                  |   | 17,000
|Guaranteed fund collateral (4)             |  |                   | 18,100  |                  |   | 1,700 
|Other cash collateral (5)                  |  |                   | 7,197   |                  |   | 4,584 
|                                           |  |                   |         |                  |   |       
|                                           |  | $                 | 114,078 |                  | $ | 72,805
|                                           |  |                   |         |                  |   |       

---

|(1) | Under the financing method of accounting for guaranteed tax credit equity funds and due to the consolidation of certain other funds in accordance with FIN 46R, the Company reports
the restricted cash of the funds in the Companys consolidated balance sheet. The cash is to be used primarily for investments by the consolidated funds into partnerships and other approved uses as set out in the funds partnership
agreements.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Under the terms of the Companys interest rate swap agreements with counterparties, the Company is required to maintain cash deposits (margin call deposits).
The margin call deposit requirements are specific to each counterparty. The Company must make margin call deposits when the total fair value of the Companys outstanding swap obligations to any one counterparty is, in most cases, greater than
$1.0 million.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | In order to facilitate the securitization of certain assets at higher leverage ratios than otherwise available to the Company without the posting of additional collateral, the
Company has pledged additional bonds to a pool that acts as collateral for senior interests in certain securitization trusts. From time to time, the Company may also post cash or cash equivalents to this pool.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Under the terms of investor return floor agreements with Merrill Lynch related to certain guaranteed tax credit equity funds, the Company is required to post upfront collateral. The
total collateral includes $8.6 million in cash collateral, $8.5 million of investments in third party floating rate trust securities, and $1.0 million of tax credit equity fund reserves.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | From time to time, the Company may elect to pledge collateral in connection with other guarantees, first loss positions and leases or on behalf of its customers in order to
facilitate credit and other collateral requirements. Collateral posted on behalf of its customers is considered temporary and the Company expects to be fully reimbursed.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



20



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##### Table of Contents

NOTE 9NOTES PAYABLE AND DEBT



The Companys notes payable consist primarily of notes payable and advances under line of credit arrangements which are used to:
(1) finance lending activities; (2) finance working capital needs; and (3) warehouse real estate operating partnerships before they are placed into tax credit equity funds. Notes payable also includes factored and mortgage notes
payable reflected on the Companys condensed consolidated balance sheets as a result of consolidating certain tax credit equity funds pursuant to FIN 46R. The factored notes payable are obligations of the limited partners (investors) of the
tax-credit funds and collateralized by the investors subscription receivables. The factored notes payable are non-recourse and not guaranteed by the Company. The mortgage notes payable are obligations of Project Partnerships, in which the
Company is the general partner, and are non-recourse and not guaranteed by the Company. The Companys short- and long-term debt relates to securitization transactions and other financing transactions that the Company has recorded as borrowings.
The following table summarizes notes payable and debt at September 30, 2005 and December 31, 2004:



|                                        |  |                        |         |     |                   |   |                  |  |   |          
|--------------------------------------- |  | ---------------------- | ------- | --- | ----------------- | - | ---------------- |  | - | ---------
|(in thousands)                          |  | Total ofFacilities (1) |         |     | September 30,2005 |   | December 31,2004
|Short-term notes payable                |  |                        | N/A     |     |                   | $ | 191,833          |  | $ | 193,311  
|Lines of credit                         |  | $                      | 597,000 | (2) |                   |   | 282,714          |  |   | 307,306  
|Short-term debt                         |  |                        | N/A     |     |                   |   | 484,059          |  |   | 413,157  
|                                        |  |                        |         |     |                   |   |                  |  |   |          
|Total short-term notes payable and debt |  |                        |         |     |                   |   | 958,606          |  |   | 913,774  
|                                        |  |                        |         |     |                   |   |                  |  |   |          
|Long-term notes payable                 |  |                        | N/A     |     |                   |   | 145,496          |  |   | 173,440  
|Lines of credit                         |  | $                      | 302,000 |     |                   |   | 146,088          |  |   | 14,080   
|Long-term debt                          |  |                        | N/A     |     |                   |   | 139,041          |  |   | 164,014  
|                                        |  |                        |         |     |                   |   |                  |  |   |          
|Total long-term notes payable and debt  |  |                        |         |     |                   |   | 430,625          |  |   | 351,534  
|                                        |  |                        |         |     |                   |   |                  |  |   |          
|Factored notes payable                  |  |                        |         |     |                   |   | 121,284          |  |   | 192,087  
|Mortgage notes payable                  |  |                        |         |     |                   |   | 109,627          |  |   | 132,237  
|                                        |  |                        |         |     |                   |   |                  |  |   |          
|Total notes payable and debt            |  |                        |         |     |                   | $ | 1,620,142        |  | $ | 1,589,632
|                                        |  |                        |         |     |                   |   |                  |  |   |          

---

|(1) | As of September 30, 2005.
|--- | -------------------------



|(2) | $39.0 million of these facilities are reserved for letters of credit.
|--- | ---------------------------------------------------------------------



The Warehousing Credit and Security Agreement with Residential Funding Corporation expired on October 31, 2005, and the principal thereunder was paid in full.



During the second quarter of 2005, the Company entered into a new term
financing facility of up to $22.0 million with Compass Bank. The facility is secured by certain taxable bonds and has a maturity date of May 1, 2010. Interest accrues at LIBOR plus a spread. In connection with this facility, the Company entered
into certain interest rate swap agreements (see Note 7).



During the third
quarter of 2005, the Company entered into a revolving warehouse facility of up to $30.0 million with SunTrust Bank. The facility is secured by taxable bonds and loans held, and it matures on August 31, 2008. Interest accrues on this facility at
the London Interbank Offer Rate (LIBOR) plus a spread.



In
November 2005, the Company amended and restated a $140.0 million existing warehouse line with Bank of America, N.A. extending the maturity of the line one year.



In connection with the Glaser acquisition, the Company entered into an Amended and Restated Credit Agreement (Credit Agreement) effective as of
July 1, 2005 with U.S. Bank National Association (U.S. Bank). The Credit Agreement provided for revolving loans to the Company to finance specified types of mortgage loans, investments and advances in an amount of up to
$255.0 million, subject to sub-limits for particular classifications of borrowings. The revolving loans have varying maturities of up to 90 days as agreed upon between the Company and U.S. Bank. Depending on the type of borrowing, revolving loans
bear interest at either U.S. Banks prime rate or a floating rate, reset daily, equal to the one-month LIBOR rate plus a spread. The revolving loans are secured by a first priority lien on specified loans, mortgages, investments and
advances financed under the Credit Agreement. In September 2005, the Company extended the term of the facility from September 30, 2005 to November 18, 2005 with a reduction in the committed amount from $255.0 million to $110.0 million. The
Company expects to complete negotiation on the renewal of the Credit Agreement before the expiration of the extension.



Covenant Compliance



Under the terms of the various credit facilities, the Company is required to comply with financial covenants including net worth, interest coverage, leverage, collateral and other terms and conditions.



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As of September 30, 2005, the Company was in compliance with all material financial covenants in its credit
facilities.



NOTE 10SUBORDINATE DEBENTURES



In 2005, MMA Financial Holdings, Inc., a consolidated indirect wholly-owned subsidiary of
the Company (MFH), formed MFH Capital Trust II (MFH Trust II) and MFH Capital Trust III (MFH Trust III) as unconsolidated special purpose financing entities.



8.05% Subordinate Debentures Purchased by MFH Trust II



On March 15, 2005, MFH Trust II sold $50.0 million of its 8.05% preferred securities,
liquidation amount of $1,000 per preferred security, guaranteed by MFH and the Company (the MFH Trust II Preferred Securities) to qualified institutional investors. The MFH Trust II Preferred Securities bear interest at an annual
rate of 8.05% through the interest payment date in March 2015, to be adjusted thereafter to a variable rate, reset quarterly, equal to three month LIBOR plus 3.30% per annum of the liquidation amount and may be redeemed in whole or in part
beginning on March 30, 2010. Cash distributions on the MFH Trust II Preferred Securities are paid quarterly.



MFH Trust II used the proceeds from the offering to purchase 8.05% junior subordinated debentures issued by MFH with substantially the same economic terms as the MFH
Trust II Preferred Securities that are unsecured obligations of MFH and are subordinate to all of MFHs existing and future senior debt (the 8.05% Debentures). MFH used the net proceeds from the issuance of the 8.05%
Debentures to (a) repay a portion of a loan from an affiliate, (b) repay other indebtedness of MFH and its affiliates and (c) for general corporate purposes. MFH Trust II can make distributions to holders of the MFH Trust II Preferred
Securities only if MFH makes payments on the 8.05% Debentures. MFH Trust II must redeem the MFH Trust II Preferred Securities when and to the extent the 8.05% Debentures are paid at maturity (March 30, 2035) or earlier redeemed.



7.62% Subordinate Debentures Purchased by MFH Trust III



On June 28, 2005, MFH Trust III sold $38.8 million of its 7.62% preferred securities,
liquidation amount of $1,000 per preferred security, guaranteed by MFH and the Company (the MFH Trust III Preferred Securities, and together with the MFH Trust II Preferred Securities, the Trust Preferred
Securities) to qualified institutional investors. The MFH Trust III Preferred Securities bear interest at an annual rate of 7.62% through the interest payment date in June 2015, to be adjusted thereafter to a variable rate, reset
quarterly, equal to three month LIBOR plus 3.30% per annum of the liquidation amount and may be redeemed in whole or in part beginning on July 30, 2010. Cash distributions on the MFH Trust III Preferred Securities are paid quarterly.



MFH Trust III used the proceeds from the offerings to purchase 7.62% junior
subordinated debentures issued by MFH with substantially the same economic terms as the MFH Trust III Preferred Securities that are unsecured obligations of MFH and are subordinate to all of MFHs existing and future senior debt (the
7.62% Debentures, and together with the 8.05% Debentures, the Debentures). MFH used the net proceeds from the issuance of the 7.62% Debentures to fund a portion of the acquisition of Glaser (described above in
Note 3). MFH Trust III can make distributions to holders of the MFH Trust III Preferred Securities only if MFH makes payments on the 7.62% Debentures. MFH Trust III must redeem the MFH Trust III Preferred Securities when and to the extent the 7.62%
Debentures are paid at maturity (July 30, 2035) or earlier redeemed.



The
Debentures are included in the accompanying condensed consolidated balance sheets as a long-term liability at the liquidation preference of $88.8 million. In addition, net offering costs of $2.9 million related to the Trust Preferred Securities are
recorded as debt issuance costs and included in other assets in the accompanying condensed consolidated balance sheet. The offering costs paid by MFH are amortized to interest expense in the accompanying condensed consolidated income statement over
a 30-year period based on the call option of the preferred shares.



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NOTE 11TAX CREDIT EQUITY GUARANTEE LIABILITY



As part of the acquisition of the HCI business (HCI) of Lend Lease Corporation Limited (Lend Lease),
the Company provided guarantees to Lend Lease related to certain tax credit equity syndication funds where Lend Lease is providing a guarantee to investors or a third party. In addition, subsequent to the acquisition of HCI, the Company has
established new guaranteed tax credit equity funds whereby the Company provides a guarantee to a third party or investors. The following table shows the changes in the tax credit equity guarantee liability:



|                                        |  |   |         |  
|--------------------------------------- |  | - | ------- | -
|(in thousands)                          |  |   |        
|Balance at January 1, 2005              |  | $ | 186,778 |  
|Amortization                            |  |   | (7,761  | )
|Expiration of guarantees                |  |   | (48,147 | )
|Limited partners capital contributions |  |   | 78,991  |  
|                                        |  |   |         |  
|Balance at September 30, 2005           |  | $ | 209,861 |  
|                                        |  |   |         |  



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NOTE 12GUARANTEES, COMMITMENTS AND CONTINGENCIES



Set forth in the table below is a summary of the maximum exposure, carrying amount and
supporting collateral with respect to the Companys guarantee obligations. The Companys maximum exposure under its guarantee obligations may not be indicative of the likelihood of the expected loss under the guarantees. The following
table summarizes the Companys guarantees by type at September 30, 2005:



|                                                      |  |                    |   |  |                 |         |                |   |                       |  |                                                                                            
|----------------------------------------------------- |  | ------------------ | - |  | --------------- | ------- | -------------- | - | --------------------- |  | -------------------------------------------------------------------------------------------
|(in millions)                                         |  | September 30, 2005
|Guarantee                                             |  | Note               |   |  | MaximumExposure |         | CarryingAmount |   | Supporting Collateral
|Loss-sharing agreements with Fannie Mae, GNMA and HUD |  | (1                 | ) |  | $               | 517.7   |                | $ | 0.2                   |  | $4.0 million letter of credit pledged                                                      
|Bank line of credit guarantees                        |  | (2                 | ) |  |                 | 279.4   |                |   | 279.4                 |  | $316.6 million of investment in partnership, loans receivable, tax-exempt and taxable bonds
|Tax credit-related guarantees                         |  | (3                 | ) |  |                 | 508.9   |                |   | 230.5                 |  | $36.6 million of cash, tax-exempt bonds, loans receivable and letters of credit            
|Other financial/payment guarantees                    |  | (4                 | ) |  |                 | 461.5   |                |   | 295.1                 |  | $499.2 million of cash, equity and tax-exempt bonds                                        
|Put options                                           |  | (5                 | ) |  |                 | 70.8    |                |   | 2.1                   |  | $14.8 million of tax-exempt bonds                                                          
|Letters of credit guarantees                          |  | (6                 | ) |  |                 | 121.9   |                |   | 65.3                  |  | $11.0 million of cash and loans receivable                                                 
|Indemnification securities contracts                  |  | (7                 | ) |  |                 | 131.4   |                |   | 78.0                  |  | None                                                                                       
|Trust preferred securities guarantees                 |  | (8                 | ) |  |                 | 175.8   |                |   | 175.8                 |  | None                                                                                       
|                                                      |  |                    |   |  |                 |         |                |   |                       |  |                                                                                            
|                                                      |  |                    |   |  | $               | 2,267.4 |                | $ | 1,126.4               |  |                                                                                            
|                                                      |  |                    |   |  |                 |         |                |   |                       |  |                                                                                            

---

|(1) | As a Fannie Mae DUS lender and GNMA loan servicer, the Company may share in losses relating to underperforming real estate mortgage loans delivered to Fannie Mae and GNMA.
More specifically, if the borrower fails to make a payment of principal, interest, taxes or insurance premiums on a DUS loan originated by the Company and sold to Fannie Mae, the Company may be required to make servicing advances to Fannie Mae.
Also, the Company may participate in a deficiency after foreclosure on Fannie Mae DUS and GNMA loans. The term of the loss sharing agreement is based on the contractual requirements of the underlying loans delivered to Fannie Mae and GNMA, which
varies to a maximum of 40 years.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The Company provides payment or performance guarantees for certain borrowings under line of credit facilities. The amount outstanding under these lines of credit was $277.8 million
at September 30, 2005. This amount is included in notes payable in the Companys condensed consolidated balance sheets.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | The Company acquires and sells interests in partnerships that provide low-income housing tax credits for investors. In conjunction with the sale of these partnership interests, the
Company may provide performance guarantees on the underlying properties owned by the partnerships or guarantees to the fund investors. These guarantees have various expirations to a maximum term of 20 years.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | The Company has entered into arrangements that require it to make payments in the event that a specified third party fails to perform on its financial obligations. The Company
typically provides these guarantees in conjunction with the sale of an asset to a third party or the Companys investment in equity ventures. The term of such guarantees vary based on loan payoff schedules or Company divestitures.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | The Company has entered into put option agreements with counterparties whereby the counterparty has the right to sell to the Company, and the Company has the obligation to buy, an
underlying investment at a specified price. These put option agreements expire at various dates through June 2010.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | The Company provides a guarantee of the repayment on losses incurred under letters of credit issued by third parties or to provide substitute letters of credit at a predetermined
future date. In addition, the Company may provide a payment guarantee for certain assets in securitization programs. These guarantees expire at various dates through September 2007.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | The Company has entered into indemnification contracts, which require the guarantor to make payments to the guaranteed party based on changes in an underlying investment that is
related to an asset or liability of the guaranteed party. These agreements typically require the Company to reimburse the guaranteed party for legal and other costs in the event of an adverse judgment in a lawsuit or the imposition of additional
taxes due to a change in the tax law or an adverse interpretation of the tax law. The term of the indemnification varies based on the underlying program life, loan payoffs, or Company divestitures. Based on the terms of the underlying contracts, the
maximum exposure amount only includes amounts that can be reasonably estimated at this time. The actual exposure amount could vary significantly.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | The Company provides a payment guarantee of the underlying trust preferred securities issued by certain unconsolidated entities (see Note 10). The guarantee obligation is unsecured
and subordinated to the Companys existing and future debt and liabilities, except for debt and liabilities which by their terms are specifically subordinated to the guarantee obligations and the rights of the holders of various classes of
existing and future preferred shares of the Company.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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NOTE 13SHAREHOLDERS EQUITY



Equity Offering



In February 2005, the Company sold to the public approximately 2.6 million of its common shares at a price of $26.51 per share in a registered offering. Net proceeds
from the offering were approximately $64.9 million and were used for general corporate purposes, including funding of new investments, paying down debt and working capital.



Share Repurchase Program



During the first quarter of 2005, the Company purchased 56,300 common shares at an aggregate cost of $1.4 million under a share repurchase program previously approved by
the Board of Directors.



Distributions



On January 21, 2005, the Board of Directors declared a distribution of $0.4725 per
common share for the three months ended December 31, 2004 to common shareholders of record on January 31, 2005. The payment date for the distribution was February 11, 2005. On April 21, 2005, the Board of Directors declared a
distribution of $0.4775 per common share for the three months ended March 31, 2005 to common shareholders of record on May 2, 2005. The payment date for the distribution was May 13, 2005. On July 21, 2005, the Board of Directors
declared a distribution of $0.4825 per common share for the three months ended June 30, 2005 to common shareholders of record on August 1, 2005. The payment date for the distribution was August 12, 2005.



Earnings per Share



The following tables reconcile the numerators and denominators in the basic and diluted earnings per share (EPS)
calculations for common shares for the three and nine months ended September 30, 2005 and 2004. The effect of all potentially dilutive securities was included in the calculation for September 30, 2005 and 2004. The computation of diluted
EPS for the periods ended September 30, 2005 and 2004 excluded 7,000 and 37,000 options to purchase common shares, respectively, as they were anti-dilutive.



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Municipal Mortgage & Equity, LLC

RECONCILIATION OF BASIC AND DILUTED EPS

(in thousands, except share data)

(unaudited)



|                                                                          |  |                                              |            |                                              |   |            |  |         |            |  |   |           
|------------------------------------------------------------------------- |  | -------------------------------------------- | ---------- | -------------------------------------------- | - | ---------- |  | ------- | ---------- |  | - | ----------
|                                                                          |  | For the three months endedSeptember 30, 2005 |            | For the three months endedSeptember 30, 2004
|                                                                          |  | Basic                                        |            | Diluted                                      |   | Basic      |  | Diluted
|Net income from continuing operations                                     |  | $                                            | 10,937     |                                              | $ | 10,937     |  | $       | 697        |  | $ | 697       
|Interest expense on deferred shares from acquisition, net of taxes of $81 |  |                                              |           |                                              |   | 129        |  |         |           |  |   |          
|                                                                          |  |                                              |            |                                              |   |            |  |         |            |  |   |           
|Adjusted net income from continuing operations used in EPS computation    |  | $                                            | 10,937     |                                              | $ | 11,066     |  | $       | 697        |  | $ | 697       
|                                                                          |  |                                              |            |                                              |   |            |  |         |            |  |   |           
|Weighted-average shares outstanding                                       |  |                                              | 38,064,377 |                                              |   | 38,064,377 |  |         | 34,927,975 |  |   | 34,927,975
|Dilutive securities:                                                      |  |                                              |            |                                              |   |            |  |         |            |  |   |           
|Options and deferred shares                                               |  |                                              |           |                                              |   | 446,087    |  |         |           |  |   | 339,722   
|Deferred shares from acquisition                                          |  |                                              |           |                                              |   | 472,056    |  |         |           |  |   |          
|                                                                          |  |                                              |            |                                              |   |            |  |         |            |  |   |           
|Adjusted weighted-average shares used in EPS computation                  |  |                                              | 38,064,377 |                                              |   | 38,982,520 |  |         | 34,927,975 |  |   | 35,267,697
|                                                                          |  |                                              |            |                                              |   |            |  |         |            |  |   |           
|                                                                          |  |                                             
|                                                                          |  | For the nine months endedSeptember 30, 2005  |            | For the nine months endedSeptember 30, 2004 
|                                                                          |  | Basic                                        |            | Diluted                                      |   | Basic      |  | Diluted
|Net income from continuing operations                                     |  | $                                            | 36,746     |                                              | $ | 36,746     |  | $       | 10,052     |  | $ | 10,052    
|Interest expense on deferred shares from acquisition, net of taxes of $81 |  |                                              |           |                                              |   | 129        |  |         |           |  |   |          
|                                                                          |  |                                              |            |                                              |   |            |  |         |            |  |   |           
|Adjusted net income from continuing operations used in EPS computation    |  | $                                            | 36,746     |                                              | $ | 36,875     |  | $       | 10,052     |  | $ | 10,052    
|                                                                          |  |                                              |            |                                              |   |            |  |         |            |  |   |           
|Weighted-average shares outstanding                                       |  |                                              | 37,628,566 |                                              |   | 37,628,566 |  |         | 34,343,492 |  |   | 34,343,492
|Dilutive securities:                                                      |  |                                              |            |                                              |   |            |  |         |            |  |   |           
|Options and deferred shares                                               |  |                                              |           |                                              |   | 473,299    |  |         |           |  |   | 352,654   
|Deferred shares from acquisition                                          |  |                                              |           |                                              |   | 157,352    |  |         |           |  |   |          
|                                                                          |  |                                              |            |                                              |   |            |  |         |            |  |   |           
|Adjusted weighted-average shares used in EPS computation                  |  |                                              | 37,628,566 |                                              |   | 38,259,217 |  |         | 34,343,492 |  |   | 34,696,146
|                                                                          |  |                                              |            |                                              |   |            |  |         |            |  |   |           



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NOTE 14RELATED PARTY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES AND NON-PROFIT ENTITIES



From time to time, borrowers have defaulted on their debt obligations to the Company. Some
of these obligations were incurred in connection with the development of properties that collateralize the Companys tax-exempt bonds. These properties are sometimes referred to as defaulted assets. In a number of these
circumstances, the Company has, after evaluating its options, chosen not to foreclose on the property. Instead, the Company has negotiated the transfer of a propertys deed in lieu of foreclosure to, or replaced the general partner of an
original borrowing partnership with, an entity controlled by certain officers of the Company, including MMA Affordable Housing, Inc. (MMAH) and MuniMae Foundation, Inc. (MMF). The Company has taken this action
to preserve the value of the original tax-exempt bond obligations and to maximize cash flow from the defaulted assets. The officers receive no monetary benefit from these transactions. Following the transfer of a property to, or replacement of the
general partner with, such entity, that entity controls the defaulted or previously defaulted asset, which serves as collateral for the debt to the Company.



During 2005, certain developers opted or were required to transfer to the Company or an affiliate of the Company all of their rights and interests in eleven properties,
as the developers had encountered substantial financial difficulties and/or had inadequately managed and supervised development of the underlying properties. Eight of the eleven properties were originally financed, in whole or in part, through
equity investments from tax credit equity funds that the Company sponsored (including some from guaranteed funds) and tax-exempt bond or taxable loan investments held by the Company. Two of the eleven properties had no Company debt and were
originally financed in part by equity investments from tax credit equity funds that the Company sponsored. One of the eleven properties had no equity investment sponsored by the Company and was financed in part by a tax-exempt bond investment and a
taxable loan investment held by the Company. The general partner interests in ten of the property partnerships were transferred to MMAH. The sole member interest in one of the property partnerships that is a not-for-profit was transferred to MMF.



During the third quarter of 2005, the Company continued to evaluate the risks,
funding needs and construction timelines of each of the above properties. To enable further development of certain of the properties, additional financial support has been provided depending upon the underlying facts and circumstances surrounding
each property. The Company will continue to evaluate and mitigate risks and economic impacts associated with providing additional financing to these properties and if necessary, where the Company is a senior debt holder, foreclosure as a possible
liquidation event.



The Company provided a taxable loan of $1.5 million to one
of the eleven properties. The Company continues to evaluate impairment risk related to all of the above-mentioned investments as each relates to the Company. During the third quarter of 2005, the Company recorded through a charge to impairments and
valuation allowances a loan loss reserve of $0.4 million related to taxable loans and an other-than-temporary impairment of $1.3 million related to one tax-exempt bond. As of September 30, 2005, two of the tax-exempt bonds are temporarily
impaired by $4.4 million and are carried at fair values below amortized cost through a charge to other comprehensive income. The total carrying value of the Companys investments in these properties was $62.1 million as of September 30,
2005.



The Company is exposed to or has experienced the following risks
associated with the above-mentioned investments: (1) we could decide to provide loans to the partnerships in order to complete the construction or rehabilitation of certain properties and to achieve stabilization of those properties which are
not substantially leased, and underperformance of these loans could result in losses to the Company; (2) the tax-exempt bonds secured by properties held in these partnerships could become other-than-temporarily impaired resulting in a loss
recorded in the condensed consolidated statements of income; (3) we could be called upon to make payments pursuant to our yield guarantees related to properties held in sponsored guaranteed funds; (4) a bankruptcy by the replaced general
partners or the construction companies involved in these properties or their affiliates may give rise to additional claims concerning these partnerships; and (5) we may foreclose on the properties related to our debt investments, which
foreclosure could result in losses to the Company.



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##### Table of Contents

NOTE 15BUSINESS SEGMENT REPORTING



The Company has three reportable business segments:



| |  |  | an investing segment produces tax-exempt and taxable interest income through investments in tax-exempt bonds, interests in bond securitizations, taxable loans and derivative
financial instruments and produces equity investment income from real estate operating partnerships;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a tax credit equity segment primarily generates fees by providing tax credit equity syndication and asset management services; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | a real estate finance segment primarily generates taxable fee income by providing loan servicing, loan origination, advisory and other related services. The real estate finance
segment includes certain new business/product initiatives of the Company and encompasses our fiduciary responsibilities to our institutional investor clients.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Segment results include all direct revenues and expenses of each segment and allocations of indirect expenses based on specific
methodologies. The Companys reportable segments are strategic business units that primarily generate different income streams and are managed separately.



The following tables reflect the results of the Companys business segments for the three and nine months ended September 30, 2005 and 2004.



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Municipal Mortgage & Equity, LLC

SEGMENT REPORTING FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

(in
thousands)



|                                                          |  |                                               |           |                    |   |           |            |  |   |             |   |  |                   |          |      |  |   |           |  
|--------------------------------------------------------- |  | --------------------------------------------- | --------- | ------------------ | - | --------- | ---------- |  | - | ----------- | - |  | ----------------- | -------- | ---- |  | - | --------- | -
|                                                          |  | For the three months ended September 30, 2005 |          
|                                                          |  | Investing                                     |           | Real EstateFinance |   |           | Tax Credit |  |   | Adjustments |   |  | TotalConsolidated |         
|INCOME STATEMENT DATA                                     |  |                                               |           |                    |   |           |            |  |   |             |   |  |                   |          |      |  |   |           |  
|Total interest income                                     |  | $                                             | 27,746    |                    | $ | 14,513    |            |  | $ | 1,506       |   |  | $                 | (3,204   | )(1) |  | $ | 40,561    |  
|Total fee income                                          |  |                                               | 151       |                    |   | 13,414    |            |  |   | 12,384      |   |  |                   | (4,244   | )(2) |  |   | 21,705    |  
|Net rental income                                         |  |                                               |          |                    |   |          |            |  |   | 4,828       |   |  |                   |         |      |  |   | 4,828     |  
|                                                          |  |                                               |           |                    |   |           |            |  |   |             |   |  |                   |          |      |  |   |           |  
|Total operating income                                    |  | $                                             | 27,897    |                    | $ | 27,927    |            |  | $ | 18,718      |   |  | $                 | (7,448   | )    |  | $ | 67,094    |  
|                                                          |  |                                               |           |                    |   |           |            |  |   |             |   |  |                   |          |      |  |   |           |  
|Net income (loss)                                         |  | $                                             | 29,207    |                    | $ | (1,203    | )          |  | $ | (3,343      | ) |  | $                 | (4,244   | )    |  | $ | 20,417    |  
|Depreciation and amortization                             |  |                                               | 37        |                    |   | 3,666     |            |  |   | 2,681       |   |  |                   |         |      |  |   | 6,384     |  
|Net income (loss) from equity investments in partnerships |  |                                               | 9,511     |                    |   | 864       |            |  |   | (20,666     | ) |  |                   |         |      |  |   | (10,291   | )
|Discontinued operations                                   |  |                                               | 9,480     |                    |   |          |            |  |   |            |   |  |                   |         |      |  |   | 9,480     |  
|BALANCE SHEET DATA                                        |  |                                               |           |                    |   |           |            |  |   |             |   |  |                   |          |      |  |   |           |  
|Total assets                                              |  | $                                             | 1,760,010 |                    | $ | 1,046,126 |            |  | $ | 1,040,991   |   |  | $                 | (304,489 | )(3) |  | $ | 3,542,638 |  
|                                                          | 
|                                                          |  | For the three months ended September 30, 2004 |          
|                                                          |  | Investing                                     |           | Real EstateFinance |   |           | Tax Credit |  |   | Adjustments |   |  | TotalConsolidated |         
|INCOME STATEMENT DATA                                     |  |                                               |           |                    |   |           |            |  |   |             |   |  |                   |          |      |  |   |           |  
|Total interest income                                     |  | $                                             | 27,673    |                    | $ | 9,961     |            |  | $ | 1,307       |   |  | $                 | (3,966   | )(1) |  | $ | 34,975    |  
|Total fee income                                          |  |                                               | 157       |                    |   | 1,921     |            |  |   | 12,891      |   |  |                   | (793     | )(2) |  |   | 14,176    |  
|Net rental income                                         |  |                                               |          |                    |   |          |            |  |   | 5,151       |   |  |                   |         |      |  |   | 5,151     |  
|                                                          |  |                                               |           |                    |   |           |            |  |   |             |   |  |                   |          |      |  |   |           |  
|Total operating income                                    |  | $                                             | 27,830    |                    | $ | 11,882    |            |  | $ | 19,349      |   |  | $                 | (4,759   | )    |  | $ | 54,302    |  
|                                                          |  |                                               |           |                    |   |           |            |  |   |             |   |  |                   |          |      |  |   |           |  
|Net income (loss)                                         |  | $                                             | 19,245    |                    | $ | (7,030    | )          |  | $ | 140         |   |  | $                 | (793     | )    |  | $ | 11,562    |  
|Depreciation and amortization                             |  |                                               | 32        |                    |   | 487       |            |  |   | 3,162       |   |  |                   |         |      |  |   | 3,681     |  
|Net income (loss) from equity investments in partnerships |  |                                               | 1,106     |                    |   |          |            |  |   | (47,860     | ) |  |                   |         |      |  |   | (46,754   | )
|Discontinued operations                                   |  |                                               | 10,865    |                    |   |          |            |  |   |            |   |  |                   |         |      |  |   | 10,865    |  
|BALANCE SHEET DATA                                        |  |                                               |           |                    |   |           |            |  |   |             |   |  |                   |          |      |  |   |           |  
|Total assets                                              |  | $                                             | 1,634,789 |                    | $ | 745,975   |            |  | $ | 2,046,377   |   |  | $                 | (245,723 | )(3) |  | $ | 4,181,418 |  



|(1) | Adjustments represent intercompany interest and expense that are eliminated in consolidation.
|--- | ---------------------------------------------------------------------------------------------



|(2) | Adjustments represent origination fees on purchased investments, which are deferred and amortized into income over the life of the investment.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Adjustment represents intercompany receivables and payables that are eliminated in consolidation.
|--- | -------------------------------------------------------------------------------------------------



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Municipal Mortgage & Equity, LLC

SEGMENT REPORTING FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

(in
thousands)



|                                                          |  |                                              |           |                    |   |           |            |  |   |             |   |  |                   |          |      |  |   |           |  
|--------------------------------------------------------- |  | -------------------------------------------- | --------- | ------------------ | - | --------- | ---------- |  | - | ----------- | - |  | ----------------- | -------- | ---- |  | - | --------- | -
|                                                          |  | For the nine months ended September 30, 2005 |          
|                                                          |  | Investing                                    |           | Real EstateFinance |   |           | Tax Credit |  |   | Adjustments |   |  | TotalConsolidated |         
|INCOME STATEMENT DATA                                     |  |                                              |           |                    |   |           |            |  |   |             |   |  |                   |          |      |  |   |           |  
|Total interest income                                     |  | $                                            | 84,453    |                    | $ | 36,104    |            |  | $ | 3,633       |   |  | $                 | (11,091  | )(1) |  | $ | 113,099   |  
|Total fee income                                          |  |                                              | 561       |                    |   | 24,900    |            |  |   | 37,648      |   |  |                   | (7,186   | )(2) |  |   | 55,923    |  
|Net rental income                                         |  |                                              |          |                    |   |          |            |  |   | 16,950      |   |  |                   |         |      |  |   | 16,950    |  
|                                                          |  |                                              |           |                    |   |           |            |  |   |             |   |  |                   |          |      |  |   |           |  
|Total operating income                                    |  | $                                            | 85,014    |                    | $ | 61,004    |            |  | $ | 58,231      |   |  | $                 | (18,277  | )    |  | $ | 185,972   |  
|                                                          |  |                                              |           |                    |   |           |            |  |   |             |   |  |                   |          |      |  |   |           |  
|Net income (loss)                                         |  | $                                            | 70,474    |                    | $ | (8,337    | )          |  | $ | (8,725      | ) |  | $                 | (7,186   | )    |  | $ | 46,226    |  
|Depreciation and amortization                             |  |                                              | 105       |                    |   | 5,037     |            |  |   | 8,973       |   |  |                   |         |      |  |   | 14,115    |  
|Net income (loss) from equity investments in partnerships |  |                                              | 25,800    |                    |   | 1,622     |            |  |   | (91,769     | ) |  |                   |         |      |  |   | (64,347   | )
|Discontinued operations                                   |  |                                              | 9,480     |                    |   |          |            |  |   |            |   |  |                   |         |      |  |   | 9,480     |  
|BALANCE SHEET DATA                                        |  |                                              |           |                    |   |           |            |  |   |             |   |  |                   |          |      |  |   |           |  
|Total assets                                              |  | $                                            | 1,760,010 |                    | $ | 1,046,126 |            |  | $ | 1,040,991   |   |  | $                 | (304,489 | )(3) |  | $ | 3,542,638 |  
|                                                          | 
|                                                          |  | For the nine months ended September 30, 2004 |          
|                                                          |  | Investing                                    |           | Real EstateFinance |   |           | Tax Credit |  |   | Adjustments |   |  | TotalConsolidated |         
|INCOME STATEMENT DATA                                     |  |                                              |           |                    |   |           |            |  |   |             |   |  |                   |          |      |  |   |           |  
|Total interest income                                     |  | $                                            | 81,522    |                    | $ | 29,429    |            |  | $ | 4,700       |   |  | $                 | (15,057  | )(1) |  | $ | 100,594   |  
|Total fee income                                          |  |                                              | 721       |                    |   | 12,077    |            |  |   | 32,580      |   |  |                   | (3,190   | )(2) |  |   | 42,188    |  
|Net rental income                                         |  |                                              |          |                    |   |          |            |  |   | 10,290      |   |  |                   |         |      |  |   | 10,290    |  
|                                                          |  |                                              |           |                    |   |           |            |  |   |             |   |  |                   |          |      |  |   |           |  
|Total operating income                                    |  | $                                            | 82,243    |                    | $ | 41,506    |            |  | $ | 47,570      |   |  | $                 | (18,247  | )    |  | $ | 153,072   |  
|                                                          |  |                                              |           |                    |   |           |            |  |   |             |   |  |                   |          |      |  |   |           |  
|Net income (loss)                                         |  | $                                            | 49,899    |                    | $ | (7,569    | )          |  | $ | (17,703     | ) |  | $                 | (3,190   | )    |  | $ | 21,437    |  
|Depreciation and amortization                             |  |                                              | 117       |                    |   | 1,594     |            |  |   | 7,701       |   |  |                   |         |      |  |   | 9,412     |  
|Net income (loss) from equity investments in partnerships |  |                                              | 1,266     |                    |   |          |            |  |   | (129,942    | ) |  |                   |         |      |  |   | (128,676  | )
|Discontinued operations                                   |  |                                              | 10,865    |                    |   |          |            |  |   |            |   |  |                   |         |      |  |   | 10,865    |  
|BALANCE SHEET DATA                                        |  |                                              |           |                    |   |           |            |  |   |             |   |  |                   |          |      |  |   |           |  
|Total assets                                              |  | $                                            | 1,634,789 |                    | $ | 745,975   |            |  | $ | 2,046,377   |   |  | $                 | (245,723 | )(3) |  | $ | 4,181,418 |  



|(1) | Adjustments represent intercompany interest and expense that are eliminated in consolidation.
|--- | ---------------------------------------------------------------------------------------------



|(2) | Adjustments represent origination fees on purchased investments, which are deferred and amortized into income over the life of the investment.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Adjustment represents intercompany receivables and payables that are eliminated in consolidation.
|--- | -------------------------------------------------------------------------------------------------



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NOTE 16DISCONTINUED OPERATIONS



In January and March of 2005, property of certain Project Partnerships was sold for net proceeds of $1.8 million. Approximately $6.9 million
of liabilities for the affected Project Partnerships were forgiven and included in the overall gain to the partnerships. The Company holds a less than 1% general partner interest in the Project Partnerships, and, therefore, the activities related to
these properties, including the associated gain on disposal, are de minimis to the Company. The Company as general partner received no proceeds from the sales.



In August 2005, the Company both acquired a property by deed in lieu of foreclosure and sold the property for net proceeds of approximately $17.5 million. The property
previously served as collateral for a tax-exempt bond and taxable loan held by the Company. The following table summarizes the components of discontinued operations for the periods presented.



|                                          |  |                                         |       |                                        |   |        |  |      |       |  |   |       
|----------------------------------------- |  | --------------------------------------- | ----- | -------------------------------------- | - | ------ |  | ---- | ----- |  | - | ------
|                                          |  | For the three months endedSeptember 30, |       | For the nine months endedSeptember 30,
|(in thousands)                            |  | 2005                                    |       | 2004                                   |   | 2005   |  | 2004
|Income (loss) from operations of property |  | $                                       |      |                                        | $ |       |  | $    |      |  | $ |      
|Gain on disposal of property              |  |                                         | 9,480 |                                        |   | 10,865 |  |      | 9,480 |  |   | 10,865
|                                          |  |                                         |       |                                        |   |        |  |      |       |  |   |       
|Discontinued operations                   |  | $                                       | 9,480 |                                        | $ | 10,865 |  | $    | 9,480 |  | $ | 10,865
|                                          |  |                                         |       |                                        |   |        |  |      |       |  |   |       



The net assets of the properties as of
the dates of sale were as follows:



|                                      |  |      |         |   |      |   |      
|------------------------------------- |  | ---- | ------- | - | ---- | - | -----
|(in thousands)                        |  | 2005 |         |   | 2004
|Fixed assets                          |  | $    | 23,392  |   |      | $ | 3,983
|Other assets                          |  |      | 545     |   |      |   | 366  
|Other liabilities                     |  |      | (12,479 | ) |      |   | 784  
|                                      |  |      |         |   |      |   |      
|Net assets of discontinued operations |  | $    | 11,458  |   |      | $ | 5,133
|                                      |  |      |         |   |      |   |      



NOTE 17SUBSEQUENT EVENTS



On November 4, 2005, a subsidiary of the Company, TE Bond Subsidiary, LLC
(TE Bond Sub) completed a $100.0 million private placement of rated tax-exempt perpetual preferred shares (Preferred Shares). The net proceeds of $97.7 million will be used to acquire investments that produce
tax-exempt interest income and for general corporate purposes which may include the repayment of indebtedness of TE Bond Sub. The offering included five new series of tax-exempt securities consisting of $18.0 million of Series A-3 Cumulative
Perpetual Preferred Shares, $16.0 million of Series A-4 Cumulative Perpetual Preferred Shares, $22.0 million of Series B-3 Subordinate Cumulative Perpetual Preferred Shares, $10.0 million of Series C-3 Subordinate Cumulative Perpetual Preferred
Shares and $34.0 million of Series D Subordinate Cumulative Perpetual Preferred Shares. These shares were sold to institutional investors with a weighted average distribution rate of 5.43%.



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations.
|------- | --------------------------------------------------------------------------------------



Overview



Municipal Mortgage & Equity, LLC (MuniMae and, together with its subsidiaries, the Company) provides debt and equity
financing to developers of multifamily housing and other real estate investments. The Company invests in tax-exempt bonds, or interests in bonds, issued by state and local governments or their agencies or authorities to finance multifamily housing
developments. These tax-exempt bonds are not general obligations of state and local governments, or the agencies or authorities that issue the bonds; however, the multifamily housing developments, as well as the rents paid by the tenants, typically
secure these investments. The Company also invests in tax-exempt bonds, or interests in bonds, secured by student housing or assisted living developments; and tax-exempt bonds issued by community development districts to finance the development of
community infrastructure supporting single-family housing, mixed use and commercial developments and secured by specific payments or assessments pledged by the local improvement district that issues the bonds (CDD bonds). Interest
income derived from the majority of the Companys bond investments is exempt income for federal income tax purposes.



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The Company also engages in real estate finance activities that generate income that is includable for federal income tax
purposes. These include the origination of, investment in and servicing of investments in multifamily housing, and sourcing, underwriting, structuring and managing of commercial real estate investments, both for the Companys own account and on
behalf of third parties. The Company is also a low-income housing tax credit syndicator, whereby it acquires and transfers to investors interests in partnerships that receive and distribute low-income housing tax credits to investors. The Company
earns syndication fees on the placement of these interests with investors. The Company also earns fees for providing guarantees on certain tax credit equity funds and for managing the low-income housing tax credit equity funds it has syndicated.



The Company posts all reports filed with the SEC on its website at
http://www.munimae.com. The Company also makes available free of charge its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act as soon as reasonably practicable after the Company electronically files such material with the SEC. These reports are also available free of charge by contacting Angela Richardson in Investor Relations at 621 E. Pratt Street, Suite
300, Baltimore, Maryland, 21202 or info@munimae.com or by calling 888-788-3863. This Quarterly Report contains trademarks, trade names and services marks of other companies that are the property of their respective owners.



Summary Results of Operations



Net income increased $8.9 million and $24.8 million for the three and nine months ended
September 30, 2005, respectively, over the same periods in 2004. The increases are primarily driven by increases of $7.5 million and $13.7 million in fee income and $9.6 million and $19.0 million in net gain on sales offset by increases in
operating expenses of $3.7 million and $13.0 million for the three and nine months ended September 30, 2005, respectively, over the same periods in 2004. The Company recorded an income tax benefit of $0.9 million and income tax expense of $2.2
million for the three and nine months ended September 30, 2005, respectively. In addition, the Company recorded $2.0 million and $3.3 million in impairments and valuation allowances related to certain bonds, taxable loans and equity method
investments for the three and nine months ended September 30, 2005, respectively.



Recent Developments



On July 1, 2005, the Company
completed the acquisition of Glaser Financial Group, Inc. (Glaser). Glaser was a full service commercial mortgage banker that arranged financing predominately in the upper Midwest for multifamily, senior housing and commercial
real estate through Fannie Mae DUSTM, Freddie Mac, HUD/FHA, conventional and conduit funding sources. The purchase
price included a combination of cash and common shares and could total approximately $68.5 million, assuming certain performance metrics are achieved. The initial portion of the cash purchase price, which equaled $50.0 million, was financed
primarily through the sale of approximately $38.8 million in Trust Preferred Securities. The remainder of the initial portion of the purchase price is being funded through cash on hand. In connection with the acquisition, the Company entered into an
Amended and Restated Credit Agreement (Credit Agreement) effective as of July 1, 2005 with U.S. Bank National Association (U.S. Bank). The Credit Agreement provided for revolving loans to the Company to
finance specified types of mortgage loans, investments and advances in an amount of up to $255.0 million, subject to sub-limits for particular classifications of borrowings. In September 2005, the Company extended the term of the facility from
September 30, 2005 to November 18, 2005 with a reduction in the committed amount from $255.0 million to $110.0 million. The Company expects to complete negotiation on the renewal of the Credit Agreement before the expiration of this
extension.



On November 4, 2005, a subsidiary of the Company, TE Bond
Subsidiary, LLC (TE Bond Sub) completed a $100.0 million private placement of rated tax-exempt perpetual preferred shares (Preferred Shares). The net proceeds of $97.7 million will be used to acquire investments
that produce tax-exempt interest income and for general corporate purposes which may include the repayment of indebtedness of TE Bond Sub. The offering included five new series of tax-exempt securities consisting of $18.0 million of Series A-3
Cumulative Perpetual Preferred Shares, $16.0 million of Series A-4 Cumulative Perpetual Preferred Shares, $22.0 million of Series B-3 Subordinate Cumulative Perpetual Preferred Shares, $10.0 million of Series C-3 Subordinate Cumulative
Perpetual Preferred Shares and $34.0 million of Series D Subordinate Cumulative Perpetual Preferred Shares. These shares were sold to institutional investors with a weighted average distribution rate of 5.43%.



Liquidity and Capital Resources



Capital



The Companys principal short-term financing needs include: funding new investments, payment of distributions to shareholders,
acquisitions of operating partnerships pending syndication (which we refer to as warehousing) and funding of real estate finance activities. The Companys principal sources of liquidity are (a) cash and cash equivalents, (b) cash flow
from operations (c) cash flow from investing activities (which include sales of investments) and (d) cash flow from financing activities (which include equity offerings, debt offerings, securitizations, proceeds from syndications, bank
lines of credit and other credit facilities, letters of credit, pension fund financings and government sponsored entities (GSEs)).



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The following table summarizes the transactions structured by the Company for the three months ended September 30,
2005:



|                                          |  |                    |        
|----------------------------------------- |  | ------------------ | -------
|(in millions)                             |  | ThirdQuarterVolume
|Taxable Construction/Permanent Lending    |  | $                  | 704.3  
|Tax-exempt Bonds Construction/Permanent   |  |                    | 90.2   
|Supplemental Loans                        |  |                    | 12.5   
|Equity Raised for Tax Credit Syndications |  |                    | 370.2  
|                                          |  |                    |        
|Total                                     |  | $                  | 1,177.2
|                                          |  |                    |        



In order to continue to expand its
operations and meet its production projections, the Company will need to increase its access to financing during the remainder of 2005 and in future years. The Company expects it will need approximately $100.0 million to $200.0 million in new
net capital (including through additional borrowings under existing credit facilities) during the remainder of 2005 to meet its 2005 production targets. As discussed in more detail below under Cash FlowsFinancing
ActivitiesLines of Credit, the Company has entered into discussions with its existing capital providers to increase their financing commitments. In addition, the Company is seeking to establish relationships with additional pension
funds, investors in funds we manage, and to expand its relationships with GSEs.



Cash Flows



At September 30, 2005 and 2004, the Company
had cash and cash equivalents of approximately $64.5 million and $64.0 million, respectively. The following table summarizes the changes in our cash and cash equivalents balances from September 30, 2004 to September 30, 2005:



|                                                     |  |                                        |          |   |        |   |          |   |  |   |         |  
|---------------------------------------------------- |  | -------------------------------------- | -------- | - | ------ | - | -------- | - |  | - | ------- | -
|                                                     |  | For the nine months endedSeptember 30, |          |   | Change |  
|                                                     |  | 2005                                   |          |   | 2004   |   |         
|Net cash provided by (used in)                       |  |                                        |          |   |        |   |          |   |  |   |         |  
|Operating activities                                 |  | $                                      | 29,968   |   |        | $ | 20,258   |   |  | $ | 9,710   |  
|Investing activities                                 |  |                                        | (540,515 | ) |        |   | (513,297 | ) |  |   | (27,218 | )
|Financing activities                                 |  |                                        | 482,180  |   |        |   | 506,197  |   |  |   | (24,017 | )
|                                                     |  |                                        |          |   |        |   |          |   |  |   |         |  
|Net increase (decrease) in cash and cash equivalents |  | $                                      | (28,367  | ) |        | $ | 13,158   |   |  | $ | (41,525 | )
|                                                     |  |                                        |          |   |        |   |          |   |  |   |         |  



Operating ActivitiesCash
flow from operating activities was $30.0 million and $20.3 million for the nine months ended September 30, 2005 and 2004, respectively. The $9.7 million increase in operating cash flow for 2005 versus 2004 is due primarily to an increase in net
changes in assets and liabilities of $5.8 million, a net decrease in non-cash items, tax benefits and income allocable to preferred shareholders of $6.4 million, an increase in net gain on sales of $16.4 million, offset by an increase in net income
from continuing operations of $26.7 million.



Investing ActivitiesCash flow used in investing activities was $540.5 million and $513.3 million for the nine months ended September 30, 2005 and 2004, respectively. The $27.2 million decrease in investing cash flow for 2005 versus 2004 is due primarily to a
$163.9 million increase in cash received from principal payments on loans and bonds and proceeds from sales of investments, a net increase of $29.2 million in purchases of bonds and interests in bonds and loan originations, a $61.4 million increase
in net cash flows towards investments in restricted assets, a $58.6 million increase in cash used in acquisitions of assets and businesses, a $35.1 million decrease in net investments and distributions from investments in partnerships and a $7.0
million increase in cash used for purchases of property and equipment.



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Financing ActivitiesCash flow from financing activities was $482.2 million and $506.2 million for the nine
months ended September 30, 2005 and 2004, respectively. The $24.0 million decrease in financing cash flow for 2005 versus 2004 is due primarily to a $471.5 million increase in cash used to pay down credit facilities and short-term and long-term
debt from securitizations, $325.9 million increase in cash from borrowing provided by our credit facilities and securitizations, $120.4 million increase in cash from investors in consolidated tax credit equity funds, a $9.9 million net increase
in cash from the issuance of common shares partially offset by cash used to purchase treasury shares and reductions in cash from common share option exercises and a $8.7 million increase in cash used to pay common share and preferred share
distributions.



Equity Offerings



In February 2005, the Company sold to the public approximately 2.6 million common
shares at a price of $26.51 per share. Net proceeds on the 2.6 million shares approximated $64.9 million. The net proceeds from this offering were used for general corporate purposes, including funding of new investments, paying down debt and
working capital.



As discussed above under the headingRecent
Developments, TE Bond Sub completed a private placement of Preferred Shares in November 2005 with net proceeds of approximately $97.7 million.



Debt Offerings



In 2005, MMA Financial Holdings, Inc., a consolidated indirect wholly-owned subsidiary of the Company (MFH), formed MFH Capital Trust II (MFH Trust II) and MFH Capital Trust III
(MFH Trust III) as unconsolidated special purpose financing entities.



On March 15, 2005, MFH Trust II sold $50.0 million of its 8.05% preferred securities, liquidation amount of $1,000 per preferred security, guaranteed by MFH and the Company (the MFH Trust II Preferred
Securities) to qualified institutional investors. The MFH Trust II Preferred Securities bear interest at an annual rate of 8.05% through the interest payment date in March 2015, to be adjusted thereafter to a variable rate, reset
quarterly, equal to three month LIBOR plus 3.30% per annum of the liquidation amount and may be redeemed in whole or in part beginning on March 30, 2010. Cash distributions on the MFH Trust II Preferred Securities are paid quarterly.



MFH Trust II used the proceeds from the offering to purchase 8.05% junior
subordinated debentures issued by MFH with substantially the same economic terms as the MFH Trust II Preferred Securities that are unsecured obligations of MFH and are subordinate to all of MFHs existing and future senior debt (the 8.05%
Debentures). MFH used the net proceeds from the issuance of the 8.05% Debentures to (a) repay a portion of a loan from an affiliate, (b) repay other indebtedness of MFH and its affiliates and (c) for general corporate purposes.
MFH Trust II can make distributions to holders of the MFH Trust II Preferred Securities only if MFH makes payments on the 8.05% Debentures. MFH Trust II must redeem the MFH Trust II Preferred Securities when and to the extent the 8.05% Debentures
are paid at maturity (March 30, 2035) or earlier redeemed.



On June 28,
2005, MFH Trust III sold $38.8 million of its 7.62% preferred securities, liquidation amount of $1,000 per preferred security, guaranteed by MFH and the Company (the MFH Trust III Preferred Securities, and together with the MFH
Trust II Preferred Securities, the Trust Preferred Securities) to qualified institutional investors. The MFH Trust III Preferred Securities bear interest at an annual rate of 7.62% through the interest payment date in June 2015,
to be adjusted thereafter to a variable rate, reset quarterly, equal to three month LIBOR plus 3.30% per annum of the liquidation amount and may be redeemed in whole or in part beginning on July 30, 2010. Cash distributions on the MFH
Trust III Preferred Securities are paid quarterly.



MFH Trust III used the
proceeds from the offerings to purchase 7.62% junior subordinated debentures issued by MFH with substantially the same economic terms as the MFH Trust III Preferred Securities that are unsecured obligations of MFH and are subordinate to all of
MFHs existing and future senior debt (the 7.62% Debentures, and together with the 8.05% Debentures, the Debentures). MFH used the net proceeds from the issuance of the 7.62% Debentures to fund a portion of
the acquisition of Glaser (described above in Note 3, Acquisitions to the Condensed Consolidated Financial Statements). MFH Trust III can make distributions to holders of the MFH Trust III Preferred Securities only if MFH makes payments
on the 7.62% Debentures. MFH Trust III must redeem the MFH Trust III Preferred Securities when and to the extent the 7.62% Debentures are paid at maturity (July 30, 2035) or earlier redeemed.



The Company expects to continue to generate capital through the issuance of privately placed
preferred securities.



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Preferred Shares



As discussed above underRecent Developments and Note 17, Subsequent Events, in November 2005, a subsidiary of the Company, TE Bond
Subsidiary, LLC completed a $100.0 million private placement of rated tax-exempt perpetual preferred shares .



Lines of Credit



Residential Funding
CorporationThe Warehousing Credit and Security Agreement with Residential Funding Corporation expired on October 31, 2005, and the principal thereunder was paid in full.



Compass BankDuring the second quarter of 2005, the Company entered into a new term financing facility with Compass Bank
providing for total borrowings of up to $22.0 million. The facility is secured by certain taxable bonds and has a maturity date of May 1, 2010. Interest accrues at LIBOR plus a spread. In connection with this facility, the Company entered into
certain interest rate swap agreements (see Note 7 to the Condensed Consolidated Financial Statements).



SunTrust BankDuring the third quarter of 2005, the Company entered into a revolving warehouse facility of up to $30.0 million with SunTrust Bank. The facility is secured by taxable bonds and loans
held, and it matures on August 31, 2008. Interest accrues on this facility at the London Interbank Offer Rate (LIBOR) plus a spread.



Bank of AmericaIn November 2005, the Company amended and restated a $140.0 million existing warehouse line with Bank of America, N.A. extending the maturity
of the line one year.



U.S. BankIn connection with the Glaser
acquisition, MMA Mortgage Investment Corporation, an indirect wholly-owned subsidiary of the Company (MMIC), entered into an Amended and Restated Credit Agreement (Credit Agreement) effective as of July 1,
2005 with U.S. Bank National Association (U.S. Bank). The Credit Agreement provided for revolving loans to MMIC to finance specified types of mortgage loans, investments and advances in an amount of up to $255.0 million, subject
to sub-limits for particular classifications of borrowings. The revolving loans have varying maturities of up to 90 days as agreed upon between the Company and U.S. Bank. Depending on the type of borrowing, revolving loans bear interest at either
U.S. Banks prime rate or a floating rate, reset daily, equal to the one-month LIBOR rate plus a spread. The revolving loans are secured by a first priority lien on specified loans, mortgages, investments and advances financed under the Credit
Agreement. In September 2005, the Company extended the term of the facility from September 30, 2005 to November 18, 2005 with a reduction in the committed amount from $255.0 million to $110.0 million. The Company expects to complete
negotiation on the renewal of the Credit Agreement before the expiration of the extension.



Debt CovenantsCertain of our credit facilities contain restrictive covenants, including, but not limited to, including net worth, interest coverage, leverage, collateral and other terms and conditions. As
of September 30, 2005, the Company was in compliance with all material financial covenants applicable to its credit facilities.



Off-Balance-Sheet Arrangements



The Company may invest in bonds that are subordinate in priority of payment to senior bonds that are owned by a third party. Such senior bonds represent off-balance-sheet
debt for the Company. These senior bonds that are not reflected on the Companys balance sheet at September 30, 2005 and December 31, 2004 totaled $11.5 million and $11.9 million, respectively (face amount).



The Company securitizes bonds and other assets in order to enhance its overall return on its
investments and to generate proceeds that facilitate the acquisition of additional investments. The Company uses various programs to facilitate the securitization and credit enhancement of its bond investments. For a description of a typical bond
securitization structure, see further discussion under Liquidity and Capital Resources in the Companys 2004 Form 10-K. The substantial majority of the Companys securitizations are reflected as indebtedness on its consolidated
balance sheet, and off-balance-sheet securitizations are not material to the Companys liquidity and capital needs. At September 30, 2005 and December 31, 2004, the Companys total off-balance-sheet debt relating to securitizations totaled
$103.0 million and $144.1 million, respectively.



Contractual Obligations



The Companys 2004 Form 10-K contains a detailed description of the
Companys contractual obligations. Except as described below, there has been no material change to the information related to the Companys contractual obligations since December 31, 2004.



March 2005 Transaction



In March 2005, the Company entered into a contractual arrangement whereby the counterparty
to the arrangement will purchase tax-exempt bonds from the Company or a third party and hold the bonds for a minimum of 30 days. The Company will have the option to bid for the purchase of the bonds at the time of sale by the counterparty.
Regardless of whether the bonds are purchased by the Company or not, the Company will pay to the counterparty or receive from the counterparty amounts for any declines or increases in the bonds market value from the date of purchase to the
date of swap termination. The arrangement is considered a derivative. The total maximum notional amount of the swap is $50.0 million, based on the underlying value of the bonds held by the counterparty. The Company will receive a 1.50% annual fee on
the outstanding notional amount of the swap. During the term of the swap, the Company is required to post collateral equal to the amount by which the purchase price of the bond or bonds subject to the swap exceeds the quoted market value by more
than $1.0 million. The arrangement has a maturity date of January 23, 2017. As of September 30, 2005, the Company had two swaps outstanding under this arrangement with a total notional amount of $9.6 million.



Interest Rate Swap Transactions



In connection with the Compass Bank term financing facility discussed immediately below
under Lines of Credit, the Company entered into a new interest rate swap contract with a total notional amount of $18.4 million and an effective date in July 2005. The total notional amount of this contract is expected to increase
to $22.0 million in the fourth quarter of 2005.



In addition, the Company
entered into two other interest rate swap contracts with a total notional amount of $16.9 million in February 2005, and one additional interest rate swap with a notional amount of $75.0 million in September 2005.



35



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##### Table of Contents

Lines of Credit



As discussed above under Liquidity and Capital ResourcesCash FlowsLines of Credit and Note 9, Notes Payable and Debt, to the
Condensed Consolidated Financial Statements: (1) in connection with the acquisition of Glaser, the Company entered into the Credit Agreement with U.S. Bank providing for revolving loans with varying maturities of up to 90 days, (2) during
the third quarter of 2005, the Company entered into a revolving warehouse facility of up to $30.0 million with SunTrust that matures on August 31, 2008, (3) in September 2005, the Company extended the term of its $140.0 million existing
warehouse line with Bank of America (and subsequently amended and restated this agreement (See Item 5, Other Information)) and (4) during the second quarter of 2005, the Company entered into a new term financing facility with
Compass Bank permitting total borrowings of up to $22.0 million with a maturity date of May 1, 2010.



Recent Acquisitions



In February
2005, the Company completed the acquisition of MONY Realty Capital, Inc. (MRC) from AXA Financial, Inc. for a total purchase price of $10.9 million. MRC sources, underwrites, structures, closes and manages commercial real estate
investments and is included in the Companys real estate finance segment. Part of the purchase agreement requires that the Company commit to invest $25.0 million in a real estate partnership in which MRC is already a general partner. As of
September 30, 2005, the Company had funded $9.2 million of its commitment.



As discussed above under Recent Developments and Note 3, Acquisitions, to the Condensed Consolidated Financial Statements, the Company completed the acquisition of Glaser on July 1, 2005. The purchase price for
the acquisition of Glaser includes three deferred payments of at least $4.0 million on each of the first three anniversaries of the closing date and contingent consideration that may be payable on the third anniversary of the closing date in the
event that specified levels of operating performance are achieved. The estimated future contingent consideration payable is $5.0 million.



36



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##### Table of Contents

Guarantees



Set forth in the table below is a summary of the maximum exposure, carrying amount and supporting collateral with respect to the Companys guarantee obligations. The
Companys maximum exposure under its guarantee obligations may not be indicative of the likelihood of the expected loss under the guarantees. The following table summarizes the Companys guarantees by type at September 30, 2005:



|                                                      |  |                    |   |  |                 |         |                |   |                       |  |                                                                                            
|----------------------------------------------------- |  | ------------------ | - |  | --------------- | ------- | -------------- | - | --------------------- |  | -------------------------------------------------------------------------------------------
|(in millions)                                         |  | September 30, 2005
|Guarantee                                             |  | Note               |   |  | MaximumExposure |         | CarryingAmount |   | Supporting Collateral
|Loss-sharing agreements with Fannie Mae, GNMA and HUD |  | (1                 | ) |  | $               | 517.7   |                | $ | 0.2                   |  | $4.0 million letter of credit pledged                                                      
|Bank line of credit guarantees                        |  | (2                 | ) |  |                 | 279.4   |                |   | 279.4                 |  | $316.6 million of investment in partnership, loans receivable, tax-exempt and taxable bonds
|Tax credit-related guarantees                         |  | (3                 | ) |  |                 | 508.9   |                |   | 230.5                 |  | $36.6 million of cash, tax-exempt bonds, loans receivable and letters of credit            
|Other financial/payment guarantees                    |  | (4                 | ) |  |                 | 461.5   |                |   | 295.1                 |  | $499.2 million of cash, equity and tax-exempt bonds                                        
|Put options                                           |  | (5                 | ) |  |                 | 70.8    |                |   | 2.1                   |  | $14.8 million of tax-exempt bonds                                                          
|Letters of credit guarantees                          |  | (6                 | ) |  |                 | 121.9   |                |   | 65.3                  |  | $11.0 million of cash and loans receivable                                                 
|Indemnification securities contracts                  |  | (7                 | ) |  |                 | 131.4   |                |   | 78.0                  |  | None                                                                                       
|Trust preferred securities guarantees                 |  | (8                 | ) |  |                 | 175.8   |                |   | 175.8                 |  | None                                                                                       
|                                                      |  |                    |   |  |                 |         |                |   |                       |  |                                                                                            
|                                                      |  |                    |   |  | $               | 2,267.4 |                | $ | 1,126.4               |  |                                                                                            
|                                                      |  |                    |   |  |                 |         |                |   |                       |  |                                                                                            

---

|(1) | As a Fannie Mae DUS lender and GNMA loan servicer, the Company may share in losses relating to underperforming real estate mortgage loans delivered to Fannie Mae and GNMA. More
specifically, if the borrower fails to make a payment of principal, interest, taxes or insurance premiums on a DUS loan originated by the Company and sold to Fannie Mae, the Company may be required to make servicing advances to Fannie Mae. Also, the
Company may participate in a deficiency after foreclosure on Fannie Mae DUS and GNMA loans. The term of the loss sharing agreement is based on the contractual requirements of the underlying loans delivered to Fannie Mae and GNMA, which varies to a
maximum of 40 years.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The Company provides payment or performance guarantees for certain borrowings under line of credit facilities. The amount outstanding under these lines of credit was $277.8 million
at September 30, 2005. This amount is included in notes payable in the Companys consolidated balance sheet.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | The Company acquires and sells interests in partnerships that provide low-income housing tax credits for investors. In conjunction with the sale of these partnership interests, the
Company may provide performance guarantees on the underlying properties owned by the partnerships or guarantees to the fund investors. These guarantees have various expirations to a maximum term of 20 years.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | The Company has entered into arrangements that require the Company to make payments in the event a specified third party fails to perform on its financial obligation. The Company
typically provides these guarantees in conjunction with the sale of an asset to a third party or the Companys investment in equity ventures. The term of the guarantee varies based on loan payoff schedules or Company divestitures.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | The Company has entered into put option agreements with counterparties whereby the counterparty has the right to sell to the Company, and the Company has the obligation to buy, an
underlying investment at a specified price. These put option agreements expire at various dates through June 2010.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | The Company provides a guarantee of the repayment on losses incurred under letters of credit issued by third parties or to provide substitute letters of credit at a predetermined
future date. In addition, the Company may provide a payment guarantee for certain assets in securitization programs. These guarantees expire at various dates through September 2007.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | The Company has entered into indemnification contracts, which require the guarantor to make payments to the guaranteed party based on changes in an underlying investment that is
related to an asset or liability of the guaranteed party. These agreements typically require the Company to reimburse the guaranteed party for legal and other costs in the event of an adverse judgment in a lawsuit or the imposition of additional
taxes due to a change in the tax law or an adverse interpretation of the tax law. The term of the indemnification varies based on the underlying program life, loan payoffs, or Company divestitures. Based on the terms of the underlying contracts, the
maximum exposure amount only includes amounts that can be reasonably estimated at this time. The actual exposure amount could vary significantly.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | The Company provides a payment guarantee of the underlying trust preferred securities issued. The guarantee obligation is unsecured and subordinated to the Companys existing
and future debt and liabilities except for debt and liabilities which by their terms are specifically subordinated to the guarantee obligations and the rights of the holders of various classes of existing and future preferred shares of the Company.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Critical Accounting Policies and Estimates, New Accounting Pronouncements and Seasonality



Critical Accounting Policies and Estimates



The Companys 2004 Form 10-K contains a detailed description of the Companys
critical accounting policies and estimates. There has been no material change to the information related to critical accounting policies and estimates since December 31, 2004, except as noted under the New Accounting Pronouncements
section in Note 1 to the Condensed Consolidated Financial Statements included in this Report.



New Accounting Pronouncements



In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123R, Share-Based Payment, a revision of SFAS
No. 123, Accounting for Stock-Based Compensation and superseding APB Opinion No. 25, Accounting for Stock Issued to Employees (FAS 123R). FAS 123R requires the Company to expense grants made
under the share option and employee share purchase plan programs. The cost will be recognized over the vesting period of the applicable share option or other share-based payment. In April 2005, the Securities and Exchange Commission approved a new
rule for public companies that delays the effective date of SFAS 123R such that the Company must adopt it no later than January 1, 2006. Upon adoption of FAS 123R, amounts previously disclosed under SFAS No. 123 will be recorded in the
consolidated income statement. The Company is continuing to evaluate the impact of this standard.



In June 2005, the FASB ratified the consensus in EITF Issue No. 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the
Limited Partners Have Certain Rights (Issue 04-5), which provides guidance in determining whether a general partner controls a limited partnership. To promote consistency in applying this guidance to corporate entities and
those entities that hold real estate:



| |  |  | the EITF amended Issue No. 96-16, Investors Accounting for an Investee When the Investor Has a Majority of the Voting Interest but the Minority Interest Shareholder
or Shareholders Have Certain Approval or Veto Rights (Issue 96-16), and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the FASB staff issued FSP No. SOP 78-9-1, which amends AICPA Statement of Position 78-9, Accounting for Investments in Real Estate Ventures, to reflect the consensus reached in
Issue 04-5.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The effective date for applying the guidance in
Issue 04-5 and FSP SOP 78-9-1 is (1) June 29, 2005, for all new limited partnerships and existing limited partnerships for which the partnership agreements are modified and (2) no later than the beginning of the first reporting period
in fiscal years beginning after December 15, 2005, for all other limited partnerships. Thus far, the impact of Issue 04-5 has had no effect on the Companys financial statements. The Company will continue to evaluate the impact of Issue
04-5 throughout the remainder of 2005.



Seasonality



The results of consolidated operations for the three- and nine-month periods ended
September 30, 2005, are not necessarily indicative of the results to be expected for the full year. The operating results from the Companys tax credit equity syndication business are expected to fluctuate based on seasonal patterns. The
highest production volumes from the tax credit business generally occur in the second half of the fiscal year. However, corresponding increases in revenues are not necessarily the resulting effect as syndication revenues earned in association with
consolidated tax credit equity funds are eliminated in consolidation. Seasonality in tax-exempt bond originations generally results in higher volume in the second half of the fiscal year.



38



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##### Table of Contents

Results of Operations



Net Interest Income



|                                                        |  |                                         |         |   |                                        |        |   |      |   |         |   |  |        |      |  |   |         |   |  |        |   |  |   |         |   |  |        |  
|------------------------------------------------------- |  | --------------------------------------- | ------- | - | -------------------------------------- | ------ | - | ---- | - | ------- | - |  | ------ | ---- |  | - | ------- | - |  | ------ | - |  | - | ------- | - |  | ------ | -
|                                                        |  | For the three months endedSeptember 30, |         |   | For the nine months endedSeptember 30, |       
|(in thousands)                                          |  | 2005                                    |         |   | %                                      |        |   | 2004 |   |         | % |  |        | 2005 |  |   | %       |   |  | 2004   |   |  | % |        
|Interest on bonds and interests in bond securitizations |  | $                                       | 23,984  |   |                                        | 173.3  | % |      | $ | 22,765  |   |  | 171.5  | %    |  | $ | 71,430  |   |  | 182.0  | % |  | $ | 63,609  |   |  | 161.1  | %
|Interest on loans                                       |  |                                         | 14,971  |   |                                        | 108.2  |   |      |   | 10,872  |   |  | 81.9   |      |  |   | 38,582  |   |  | 98.3   |   |  |   | 32,981  |   |  | 83.6   |  
|Interest on short-term investments                      |  |                                         | 1,606   |   |                                        | 11.6   |   |      |   | 1,338   |   |  | 10.1   |      |  |   | 3,087   |   |  | 7.9    |   |  |   | 4,004   |   |  | 10.1   |  
|                                                        |  |                                         |         |   |                                        |        |   |      |   |         |   |  |        |      |  |   |         |   |  |        |   |  |   |         |   |  |        |  
|Total interest income                                   |  |                                         | 40,561  |   |                                        |        |   |      |   | 34,975  |   |  |       |      |  |   | 113,099 |   |  |        |   |  |   | 100,594 |   |  |       |  
|Interest expense                                        |  |                                         | (19,907 | ) |                                        | (143.9 | ) |      |   | (16,937 | ) |  | (127.6 | )    |  |   | (55,726 | ) |  | (142.0 | ) |  |   | (49,304 | ) |  | (124.9 | )
|Interest expense on debentures and preferred shares     |  |                                         | (6,818  | ) |                                        | (49.2  | ) |      |   | (4,769  | ) |  | (35.9  | )    |  |   | (18,130 | ) |  | (46.2  | ) |  |   | (11,819 | ) |  | (29.9  | )
|                                                        |  |                                         |         |   |                                        |        |   |      |   |         |   |  |        |      |  |   |         |   |  |        |   |  |   |         |   |  |        |  
|Net interest income                                     |  | $                                       | 13,836  |   |                                        | 100.0  | % |      | $ | 13,269  |   |  | 100.0  | %    |  | $ | 39,243  |   |  | 100.0  |   |  | $ | 39,471  |   |  | 100.0  | %
|                                                        |  |                                         |         |   |                                        |        |   |      |   |         |   |  |        |      |  |   |         |   |  |        |   |  |   |         |   |  |        |  



In the table above, interest on
short-term investments and interest expense include the effects of the application of the financing method and consolidation of the tax credit equity funds. Net interest income increased $0.6 million for the three months ended September 30,
2005, as compared to the same period in 2004, primarily due to: (1) a $1.2 million net increase in interest on bonds and interests in bond securitizations resulting from (i) new investments in tax-exempt bonds producing $6.1 million of
interest income, partially offset by (ii) a reduction of $2.4 million in interest income due to sales, redemptions or restructuring of underlying tax-exempt bond investments, (iii) an increase in defaulted and non-accrual bonds that
decreased interest income by $2.1 million coupled with other net decreases in bond interest income of $0.4 million; (2) a $4.1 million increase in interest on loans due to increases in the prime rate and the average loan receivable balance
partially due to the new Glaser business; (3) a $0.3 million increase in interest on short-term investments due primarily to an increase of $0.3 million in interest on short-term investments related to fluctuations in short-term investment
accounts and interest charged to tax credit equity funds on warehoused properties offset by a slight decrease in interest on short-term investments related to the financing method and consolidation of tax credit equity funds; (4) a $3.0 million
increase in interest expense resulting from (i) a $2.2 million increase in interest expense due to an increase in short-term debt holdings coupled with significant increases in short-term interest rates, (ii) a $1.1 million increase in
interest expense related to increases in underlying borrowing rates affecting notes payable balances, (iii) a $0.3 million increase in amortization of debt issue costs related to new credit facilities entered into during 2005, (iv) a $0.2
million interest expense increase resulting from the accretion of the deferred purchase price related to the Glaser acquisition, offset by (v) a $0.8 million decrease in interest expense related to the effects of the financing method and
consolidation of tax credit equity funds; (5) a $2.0 million increase in interest expense on debentures and preferred shares resulting from the interest expense and related amortization of debt issue costs applicable to the issuance of the
$112.8 million of trust preferred securities issued in September of 2004 and March and June of 2005. The above-mentioned fluctuations related to the effects of the application of the financing method and consolidation of tax credit partnerships are
primarily related to the elimination of intercompany interest from the consolidated tax credit equity funds and the effects of the application of the financing method as well as the interest expense related to the consolidated Project Partnerships.



During the three months ended September 30, 2005 and 2004, $0.9 million
and $0 million, respectively, of interest expense on preferred shares was recorded as net income allocable to minority interest. These preferred shares are recorded as preferred shareholders equity in a subsidiary company and were issued in
October of 2004. Including these amounts as interest expense above results in an overall decrease of $0.3 million in net interest income.



39



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##### Table of Contents

Net interest income decreased $0.2 million for the nine months ended September 30, 2005, as compared to the same
period in 2004, primarily due to: (1) a $7.8 million net increase in interest on bonds and interests in bond securitizations resulting from (i) new investments in tax-exempt bonds producing $21.0 million of interest income, partially
offset by (ii) an increase in defaulted and non-accrual bonds that decreased interest income by $7.1 million and (iii) a reduction of $6.7 million in interest income due to sales and restructuring of underlying tax-exempt bond investments
coupled with other net increases in bond interest income of $0.6 million; (2) a $5.6 million increase in interest on loans due to increases in interest rates and average loan receivable balances partially due to the new Glaser business;
(3) a $0.9 million decrease in interest on short-term investments due primarily to (i) a decrease of $0.2 million in interest on short-term investments related to fluctuations in short-term investment accounts and interest charged to tax
credit equity funds on warehoused properties and (ii) a decrease of $0.7 million in interest on short-term investments related to the financing method and consolidation of tax credit equity funds; (4) an increase of $6.4 million in
interest expense resulting from (i) a $5.7 million increase in expense due to an increase in short-term debt holdings coupled with significant increases in short-term interest rates, (ii) a $0.4 million increase in amortization of debt
issue costs related to new credit facilities entered into during 2005 and (iii) a $0.2 million increase resulting from the accretion of the deferred purchase price related to the Glaser acquisition coupled with other net increases in interest
expense of $0.1 million; and (5) a $6.3 million increase in interest expense on debentures and preferred shares resulting from the interest expense and related amortization of debt issue costs applicable to the issuance of the $112.8 million of
trust preferred securities issued in September of 2004 and March and June of 2005. The above-mentioned fluctuations related to the effects of the application of the financing method and consolidation of tax credit partnerships are primarily related
to the elimination of intercompany interest from the consolidated tax credit equity funds and the financing method as well as the interest expense related to the consolidated Project Partnerships.



During the nine months ended September 30, 2005 and 2004, $2.8 million and $0 million,
respectively, of interest expense on preferred shares was recorded as net income allocable to minority interest. These preferred shares are recorded as preferred shareholders equity in a subsidiary company and were issued in October of 2004.
Including these amounts as interest expense above results in an overall decrease of $3.0 million in net interest income.



Fee Income



|                                   |  |                                         |        |   |                                        |   |      |   |        |  |       |      |  |   |        |  |       |   |   |   |        |  |       |  
|---------------------------------- |  | --------------------------------------- | ------ | - | -------------------------------------- | - | ---- | - | ------ |  | ----- | ---- |  | - | ------ |  | ----- | - | - | - | ------ |  | ----- | -
|                                   |  | For the three months endedSeptember 30, |        |   | For the nine months endedSeptember 30, |  
|                                   |  | 2005                                    |        | % |                                        |   | 2004 |   | %      |  |       | 2005 |  | % |        |  | 2004  |   | % |  
|(in thousands)                     |  |                                         |        |   |                                        |   |      |   |        |  |       |      |  |   |        |  |       |   |   |  
|Syndication fees                   |  | $                                       | 2,278  |   | 10.5                                   | % |      | $ | 6,861  |  | 48.4  | %    |  | $ | 11,310 |  | 20.2  | % |   | $ | 14,802 |  | 35.0  | %
|Origination and brokerage fees     |  |                                         | 1,539  |   | 7.1                                    |   |      |   | 1,665  |  | 11.7  |      |  |   | 3,384  |  | 6.1   |   |   |   | 5,429  |  | 12.9  |  
|Guarantee fees                     |  |                                         | 3,967  |   | 18.2                                   |   |      |   | 2,093  |  | 14.8  |      |  |   | 10,942 |  | 19.5  |   |   |   | 5,452  |  | 12.9  |  
|Asset management and advisory fees |  |                                         | 7,588  |   | 35.0                                   |   |      |   | 1,685  |  | 11.9  |      |  |   | 18,618 |  | 33.3  |   |   |   | 9,818  |  | 23.3  |  
|Loan servicing fees                |  |                                         | 3,450  |   | 15.9                                   |   |      |   | 1,059  |  | 7.5   |      |  |   | 6,022  |  | 10.8  |   |   |   | 3,316  |  | 7.9   |  
|Other income                       |  |                                         | 2,883  |   | 13.3                                   |   |      |   | 813    |  | 5.7   |      |  |   | 5,647  |  | 10.1  |   |   |   | 3,371  |  | 8.0   |  
|                                   |  |                                         |        |   |                                        |   |      |   |        |  |       |      |  |   |        |  |       |   |   |   |        |  |       |  
|Total fee income                   |  | $                                       | 21,705 |   | 100.0                                  | % |      | $ | 14,176 |  | 100.0 | %    |  | $ | 55,923 |  | 100.0 | % |   | $ | 42,188 |  | 100.0 | %
|                                   |  |                                         |        |   |                                        |   |      |   |        |  |       |      |  |   |        |  |       |   |   |   |        |  |       |  



The table above includes the effects
of the application of the financing method and the consolidation of tax credit equity funds. Syndication fees, asset management and advisory fees, guarantee fees and other income are all affected by either or both of the financing method and the
consolidation of tax credit equity funds. For the three months ended September 30, 2005, total fee income increased $7.5 million over the same period for 2004. The effects of the application of the financing method and the consolidation of tax
credit equity funds account for $4.3 million of the overall increase. These effects are primarily the result of eliminating syndication fees, asset management fees and other income earned by the Company from the consolidated tax credit equity funds
and guarantee fee income generated from the financing method. This increase of $4.3 million together with the following fluctuations which net to an increase of $3.2 million result in the overall increase of $7.5 million in total fee income:
(1) a decrease of $4.5 million in syndication fees primarily due to the deferral of the recognition of syndication fee revenue where investor equity closing down payment amounts were insufficient to trigger revenue recognition; (2) a
decrease of $0.1 million in origination and brokerage fees due to (i) a decrease of $1.7 million in fees driven by a change in origination structure of taxable loans substantially offset by (ii) an increase of $1.6 million in fees from our
new MRC business; (3) a $0.5 million increase in guarantee fees primarily due to an increase in the number of guaranteed funds; (4) an increase of $2.5 million in asset management and advisory fees primarily due to the new MRC business;
(5) an increase of $2.4 million in loan servicing fees due to an increase in our servicing portfolio including fees from our new MRC and Glaser businesses; and (6) an increase of $2.4 million in other income due to (i) a reduction of
the Companys litigation reserve of $1.0 million due to a change in estimated exposure, (ii) $0.8 million in income related to the new Glaser and MRC businesses which primarily relates to prepayment and servicing fees, (iii) $0.2
million in prepayment fees from the legacy real estate finance business and (iv) $0.4 million in other income items.



40



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##### Table of Contents

For the nine months ended September 30, 2005, total fee income increased $13.7 million over the same period for
2004. The effects of the application of the financing method and the consolidation of tax credit equity funds account for $10.8 million of the overall increase. These effects are primarily the result of eliminating syndication fees, asset management
fees and other income earned by the Company from the consolidated tax credit equity funds and guarantee fee income generated from the financing method. This increase of $10.8 million together with the following fluctuations which net to an increase
of $2.9 million result in the overall increase of $13.7 million in total fee income: (1) a decrease of $4.1 million in syndication fees primarily due to the timing differences associated with investor equity down payments within tax credit
equity funds resulting in a delay in syndication fees earned; (2) a decrease of $2.0 million in origination and brokerage fees due to (i) a decrease of $4.6 million in fees driven by a change in origination structure of taxable loans
partially offset by (ii) an increase of $2.6 million in fees from our new MRC business; (3) an increase of $1.5 million in guarantee fees primarily due to an increase in the number of guaranteed funds; (4) an increase of $2.4 million
in asset management and advisory fees primarily due to the new MRC business; (5) an increase of $2.7 million in loan servicing fees due to an increase in our servicing portfolio including fees from our new MRC and Glaser businesses; and
(6) an increase of $2.4 million in other income primarily due to (i) the reduction of the Companys litigation reserve discussed above, (ii) $0.8 million in income related to the new Glaser and MRC businesses which primarily
relates to prepayment and servicing fees, (iii) $0.2 million in prepayment fees from the legacy real estate finance business and (iv) $0.4 million in other income items.



Net Rental Income



At times, the company takes ownership of the general partnership interest in underlying Project Partnerships in which the tax credit equity funds are limited partners.
The Company generally takes a 0.01% to 1% general partner interest in the Project Partnership, and the tax credit equity fund, which the Company may also consolidate, is typically the 99.99% to 99% limited partner. In addition, at times,
particularly in the case of developer failures or workouts, the Company takes ownership of the entire general partnership interest in the underlying Project Partnerships in which the tax credit equity funds are the limited partners. Net rental
income represents income from the Project Partnerships that were consolidated by the Company effective March 31, 2004. Net rental income decreased $0.3 million for the three months ended September 30, 2005, as compared to the same period
for 2004, primarily due to fewer Project Partnerships being consolidated in 2005. Net rental income increased $6.7 million for the nine months ended September 30, 2005 over the same period for 2004 due to six months of operations reflected in
2004 versus nine months of operations in 2005.



Net Gains



|                                                                  |  |                                          |        |   |                                         |       |   |      |   |        |   |  |       |      |  |   |        |  |       |   |   |   |       |  |       |  
|----------------------------------------------------------------- |  | ---------------------------------------- | ------ | - | --------------------------------------- | ----- | - | ---- | - | ------ | - |  | ----- | ---- |  | - | ------ |  | ----- | - | - | - | ----- |  | ----- | -
|                                                                  |  | For the three months ended September 30, |        |   | For the nine months ended September 30, |      
|(in thousands)                                                    |  | 2005                                     |        |   | %                                       |       |   | 2004 |   |        | % |  |       | 2005 |  | % |        |  | 2004  |   | % |  
|Net gain on sale of loans                                         |  | $                                        | 4,796  |   |                                         | 77.2  | % |      | $ | 406    |   |  | (12.0 | )%   |  | $ | 5,761  |  | 22.8  | % |   | $ | 2,816 |  | 44.6  | %
|Net gain (loss) on sale of tax-exempt investments                 |  |                                          | 442    |   |                                         | 7.1   |   |      |   | (660   | ) |  | 19.6  |      |  |   | 6,515  |  | 25.7  |   |   |   | 545   |  | 8.6   |  
|Net gain on sale of investments in tax credit equity partnerships |  |                                          | 2,494  |   |                                         | 40.1  |   |      |   | 125    |   |  | (3.7  | )    |  |   | 9,058  |  | 35.8  |   |   |   | 2,939 |  | 46.5  |  
|Net gain on deconsolidation of tax credit equity partnerships     |  |                                          | 46     |   |                                         | 0.7   |   |      |   |       |   |  |      |      |  |   | 2,547  |  | 10.1  |   |   |   |      |  |      |  
|Net gain (loss) on derivatives                                    |  |                                          | (1,563 | ) |                                         | (25.1 | ) |      |   | (3,245 | ) |  | 96.1  |      |  |   | 1,419  |  | 5.6   |   |   |   | 18    |  | 0.3   |  
|                                                                  |  |                                          |        |   |                                         |       |   |      |   |        |   |  |       |      |  |   |        |  |       |   |   |   |       |  |       |  
|Total net gains                                                   |  | $                                        | 6,215  |   |                                         | 100.0 | % |      | $ | (3,374 | ) |  | 100.0 | %    |  | $ | 25,300 |  | 100.0 | % |   | $ | 6,318 |  | 100.0 | %
|                                                                  |  |                                          |        |   |                                         |       |   |      |   |        |   |  |       |      |  |   |        |  |       |   |   |   |       |  |       |  



41



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##### Table of Contents

Net gains increased $9.6 million for the three months ended September 30, 2005, as compared to the same period in
2004, due primarily to: (1) an increase of $4.4 million in net gain on sale of loans due to (i) an increase of $2.4 million in gains from mortgage servicing rights assets related to the new Glaser business and (ii) an increase of $2.0
million in gains on originations and premiums related to sales of immediate delivery loans primarily associated with the new Glaser business; (2) a $1.1 million increase in net gain (loss) on sale of tax-exempt investments due to the sale or
repayment of six tax-exempt bonds generating $0.4 million of gain versus the sale or repayment of six tax-exempt bonds and one senior interest in a bond securitization in 2004 generating a loss of $0.7 million; (3) a $1.0 million decrease in
net gain on sale of investments in tax credit equity partnerships resulting from fluctuations in the operating results and time held of certain Project Partnerships temporarily owned by the Company prior to sale to tax credit equity funds;
(4) a $1.6 million increase in net gain (loss) on derivatives due to (i) a $1.3 million net increase primarily driven by market fluctuations in the value of the Companys derivatives and (ii) a $0.3 million increase related to
the termination of an interest rate swap; and (5) a net increase of $3.5 million to net gains related to the effects of the application of the financing method and consolidation of the tax credit equity funds. The increase from the effects of
the application of the financing method and consolidation of the tax credit equity funds primarily relates to the elimination of the gains recorded on sales of investments in tax credit equity partnerships to consolidated tax credit equity funds and
the gains recorded on the extinguishment of guarantees under the financing method.



Net gains increased $19.0 million for the nine months ended September 30, 2005, as compared to the same period in 2004, due primarily to: (1) a $2.9 million increase in net gain on sale of loans due to (i) an increase of $2.4
million in gains from mortgage servicing rights related to the new Glaser business, (ii) an increase of $2.3 million in gains on originations and premiums related to sales of immediate delivery loans primarily associated with the new Glaser
business partially offset by (iii) a $1.8 million decrease in gains on loans due to a net decrease in the legacy real estate finance business production volume; (2) a $6.0 million increase in net gain on sale of tax-exempt investments due
to the repayment or sale of eighteen tax-exempt bonds and one senior interest in a bond securitization generating $6.5 million of gain versus the sale or repayment of twelve tax-exempt bonds and one senior interest in a bond securitization in 2004
generating $0.5 million of gain; (3) a $0.1 million decrease in net gain on sale of investments in tax credit equity partnerships resulting from fluctuations in the operating results and time held of certain Project Partnerships temporarily
owned by the Company prior to sale to tax credit equity funds; (4) a $2.5 million increase in gain on deconsolidation of tax credit equity partnerships due to the deconsolidation of one tax credit equity fund in 2005 versus zero in 2004;
(5) a $1.4 million increase in net gain on derivatives due to (i) a $1.8 million increase in net gains related to the termination of interest rate swaps, offset by (ii) a $0.4 million net decrease primarily driven by market
fluctuations in the value of the Companys derivatives; and (6) a net increase of $6.3 million in net gains related to the effects of the application of the financing method and consolidation of the tax credit equity funds. The increase
from the effects of the application of the financing method and consolidation of the tax credit equity funds primarily relates to the elimination of the gains recorded on sales of investments in tax credit equity partnerships to consolidated tax
credit equity funds and the gains recorded on the extinguishment of guarantees under the financing method.



Operating Expenses



|                           |  |                                          |        |   |                                         |   |      |   |        |  |       |      |  |   |        |  |       |   |   |   |        |  |       |  
|-------------------------- |  | ---------------------------------------- | ------ | - | --------------------------------------- | - | ---- | - | ------ |  | ----- | ---- |  | - | ------ |  | ----- | - | - | - | ------ |  | ----- | -
|                           |  | For the three months ended September 30, |        |   | For the nine months ended September 30, |  
|(in thousands)             |  | 2005                                     |        | % |                                         |   | 2004 |   | %      |  |       | 2005 |  | % |        |  | 2004  |   | % |  
|Salaries and benefits      |  | $                                        | 22,227 |   | 71.7                                    | % |      | $ | 17,759 |  | 64.9  | %    |  | $ | 59,915 |  | 66.0  | % |   | $ | 53,742 |  | 69.0  | %
|General and administrative |  |                                          | 6,179  |   | 19.9                                    |   |      |   | 7,148  |  | 26.1  |      |  |   | 22,895 |  | 25.2  |   |   |   | 17,390 |  | 22.4  |  
|Professional fees          |  |                                          | 2,615  |   | 8.4                                     |   |      |   | 2,464  |  | 9.0   |      |  |   | 7,959  |  | 8.8   |   |   |   | 6,673  |  | 8.6   |  
|                           |  |                                          |        |   |                                         |   |      |   |        |  |       |      |  |   |        |  |       |   |   |   |        |  |       |  
|Total operating expenses   |  | $                                        | 31,021 |   | 100.0                                   | % |      | $ | 27,371 |  | 100.0 | %    |  | $ | 90,769 |  | 100.0 | % |   | $ | 77,805 |  | 100.0 | %
|                           |  |                                          |        |   |                                         |   |      |   |        |  |       |      |  |   |        |  |       |   |   |   |        |  |       |  



All line items in the table above
include the effects of the application of the financing method and the consolidation of tax credit equity funds. Total operating expenses increased $3.7 million for the three months ended September 30, 2005, over the same period for 2004 due
primarily to: (1) a $4.6 million increase in salaries and benefits resulting from, (i) a $4.4 million increase in salaries, bonus costs, taxes and health insurance due to an increase in headcount over the prior period as a result of the
MRC and Glaser acquisitions and (ii) a $0.2 million increase in deferred compensation arrangements related to the new MRC business; (2) a $1.1 million increase in general and administrative expenses due to increases in office rent, travel,
insurance and information technology expenses related to the increase in headcount and the integration of the new MRC and Glaser businesses; (3) a $0.2 million increase in professional fees due primarily to increased consulting and legal fees
related to the integration of the new MRC business; partially offset by (4) a $2.2 million decrease in operating expenses, after giving effect for eliminations, related to the effects of the application of the financing method and consolidation
of certain tax credit equity funds. The decrease related to the effects of the application of the financing method and consolidation of certain tax credit equity funds is due to fewer Project Partnerships being consolidated in 2005 as compared to
the same period in 2004.



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Total operating expenses increased $13.0 million for the nine months ended September 30, 2005, over the same period
for 2004 due primarily to: (1) a $5.5 million increase in salaries and benefits resulting from, (i) an $8.2 million increase in salaries, taxes and health insurance due to an increase in headcount as a result of the MRC and Glaser
acquisitions, offset by (ii) a decrease of $2.5 million in compensation costs resulting from the retirement of our previous chief executive officer and the end of 2004 and (iii) a $0.2 million decrease in bonus costs and deferred
compensation due to timing differences; (2) an increase of $2.8 million in general and administrative expenses due to increases in office rent, travel, insurance and information technology expenses related to the increase in headcount and the
integration of the new MRC and Glaser businesses; (3) a $0.9 million increase in professional fees due primarily to increased accounting and consulting fees surrounding internal control compliance; and (4) an increase in operating expenses
of $3.8 million, after giving effect for eliminations, related to the effects of the application of the financing method and consolidation of certain tax credit equity funds. The increase in operating expenses related to the effects of the
application of the financing method and consolidation of certain tax credit equity funds are primarily attributable to nine months of operations from consolidated Project Partnerships in 2005 versus six months of operations from consolidated Project
Partnerships in 2004.



Depreciation and Amortization



Depreciation and amortization increased $2.7 million for the three months ended
September 30, 2005, as compared to the same period in 2004, due to a $2.9 million increase in amortization of mortgage servicing rights assets primarily related to the new MRC and Glaser businesses offset in part by a decrease in depreciation
expense from the consolidated Project Partnerships as fewer were consolidated in the 2005 period as compared to the 2004 period.



Depreciation and amortization increased $4.7 million for the nine months ended September 30, 2005, as compared to the same period in 2004, due to: (1) a $2.9
million increase in amortization of mortgage servicing rights assets primarily related to the new MRC and Glaser businesses; (2) a $0.3 million increase in depreciation of fixed assets and amortization of intangibles resulting from the new MRC
and Glaser businesses; and (3) a $1.5 million increase in depreciation expense from the consolidated Project Partnerships due to nine months of depreciation expense versus six months for the same period in 2004.



Impairments and Valuation Allowances Related to Investments



From time to time, borrowers have defaulted on their debt obligations to the Company. Some
of these obligations were incurred in connection with the development of properties that collateralize the Companys tax-exempt bonds. These properties are sometimes referred to as defaulted assets. In a number of these
circumstances, the Company has, after evaluating its options, chosen not to foreclose on the property. Instead, the Company has negotiated the transfer of a propertys deed in lieu of foreclosure to, or replaced the general partner of an
original borrowing partnership with, an entity controlled by certain officers of the Company, including MMA Affordable Housing, Inc. (MMAH) and MuniMae Foundation, Inc. (MMF). The Company has taken this action
to preserve the value of the original tax-exempt bond obligations and to maximize cash flow from the defaulted assets. The officers receive no monetary benefit from these transactions. Following the transfer of a property to, or replacement of the
general partner with, such entity, that entity controls the defaulted or previously defaulted asset, which serves as collateral for the debt to the Company.



During the third quarter of 2005, the Company continued to evaluate the possibility of impairment related to certain transfers of interests to MMAH and MMF. These
transfers of interests were driven by underlying developer failure relating to the construction and management of the property partnerships. At this time, the facts and circumstances surrounding certain investments and the possible outcomes are not
clear and no other-than-temporary impairment is probable or estimable for these investments. However, for investments where the facts and circumstances are probable and reasonably estimable, the Company has recorded an impairment loss of $0.4
million related to taxable loans and an other-than-temporary impairment of $1.3 million related to one tax-exempt bond.



In addition to the above impairment amounts of $1.7 million recorded in impairments and valuation allowance, the Company recorded an unrelated impairment of $0.2 million
related to one taxable loan under the loss-sharing agreement with Fannie Mae.



During the third quarter of 2005, the Company recorded an impairment loss of $1.2 million associated with a loan (unrelated to the developer issue above) to a consolidated Project Partnership. The reserve was recorded through a charge to
net income allocable to minority interest due to the consolidation of the underlying Project Partnership.



For the nine months ended September 30, 2005, the Company recorded $3.3 million in impairments and valuation allowances primarily resulting from: (1) a $1.6 million impairment with respect to a warehousing
investment in a real estate operating partnership as well as one tax-exempt bond and two taxable loans and (2) a loan loss reserve of $0.4 million related to taxable loans and an other-than-temporary impairment of $1.3 million related to one
tax-exempt bond associated with the developer issues noted above.



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##### Table of Contents

Management has reviewed the Companys investment portfolio in the wake of hurricanes Rita and Katrina. Based on
information currently available to the Company, management believes that the effects of the hurricanes will not have a material impact to the Company, and no impairment related thereto has been recorded.



Net Losses from Equity Investments in Partnerships



Net losses from equity investments in partnerships decreased $36.5 million for the three
months ended September 30, 2005, as compared to the same period in 2004, due primarily to: (1) a decrease of $26.4 million in net losses from equity investments in partnerships resulting from the effects of the application of the financing
method and consolidation of certain tax credit equity funds driven by a decrease in the number of tax credit equity funds consolidated and (2) a $10.1 million decrease in net losses primarily attributable to an increase in income from
investments in income-producing real estate operating partnerships related to the new MRC business and CAPREIT, Inc. and its affiliates (CAPREIT).



Net losses from equity investments in partnerships decreased $64.3 million for the nine months ended September 30, 2005, as compared to
the same period in 2004, due primarily to: (1) a decrease of $36.5 million in net losses from equity investments in partnerships resulting from the effects of the application of the financing method and consolidation of certain tax credit
equity funds driven by a decrease in the number of tax credit equity funds consolidated offset by nine months of operations recorded in 2005 versus six months of operations in 2004; and (2) a $27.8 million decrease in net losses primarily
attributable to an increase in income from investments in income-producing real estate operating partnerships related to the new MRC business and CAPREIT.



Net Loss Allocable to Minority Interest



Net loss allocable to minority interest decreased $38.9 million and $54.7 million for the three and nine months ended September 30, 2005, respectively, as compared
to the same periods in 2004. The decrease in loss allocable to the limited partners in consolidated tax credit equity funds is primarily attributable to a decrease in the number of tax credit equity funds consolidated during 2005 as compared to
2004. The Company typically holds a 0.01% to 1% interest in the tax credit equity funds and therefore approximately 99% of the funds losses are shown as net loss allocable to minority interest in the condensed consolidated statements of
income.



Income Tax (Expense) Benefit



The Company had an income tax benefit of $0.9 million for the three months ended
September 30, 2005, as compared to income tax expense of $73,000 for the same period in 2004 due to larger deferred tax benefits offsetting current tax expense in 2005 relating to deferred revenue and fees from the tax credit equity segment.



The Company had income tax expense of $2.2 million for the nine months ended
September 30, 2005, as compared to an income tax benefit of $2.3 million for the same period in 2004. The $4.5 million increase in expense is primarily attributable to an increase in the deferred tax liability associated with equity investments
in income-producing real estate partnerships in joint ventures with CAPREIT, a reduction in available net operating losses and increased income in the Companys taxable subsidiaries.



Discontinued Operations



During the three months ended September 30, 2005, the Company acquired a property by deed in lieu of foreclosure. This property previously served as collateral for a
tax-exempt bond and taxable loan held by the Company. The Company sold the property for net proceeds of $17.5 million, which resulted in a $9.5 million gain. The $9.5 million gain was classified as discontinued operations in the condensed
consolidated statements of income.



During the three months ended
September 30, 2004, the Company acquired a property by deed in lieu of foreclosure. This property previously served as collateral for a tax-exempt bond held by the Company. The Company sold the property for net proceeds of $16.0 million, which
resulted in a $10.9 million gain. The $10.9 million gain was classified as discontinued operations in the condensed consolidated statements of income.



During January and March of 2005, property of certain Project Partnerships was sold for net proceeds of $1.8 million. The Company holds a less than 1% general partnership
interest in the Project Partnerships, and therefore, the activities related to these properties, including the associated gain on disposal, are de minimis. As a result, and no gain or loss was recorded for the three and nine months ended
September 30, 2005.



Cumulative Effect of a Change in Accounting
Principle



For the nine months ended September 30, 2004, the
Company recorded a cumulative effect of a change in accounting principle of $0.5 million as a result of the adoption of FIN 46R (See Note 6, Investment in Partnerships, to the Condensed Consolidated Financial Statements) and the
consolidation of certain tax credit equity funds.



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##### Table of Contents

Other Comprehensive Income



For the three and nine months ended September 30, 2005, the net adjustment to other comprehensive income for unrealized holding
(losses) gains on tax-exempt bonds and interests in bond securitizations available for sale was $(1.8) million and $7.1 million, respectively. After a reclassification adjustment for gains of $0.4 million and $6.5 million, respectively, included in
net income, other comprehensive (loss) income for the three and nine months ended September 30, 2005, was $(2.2) million and $0.5 million, respectively, and total comprehensive income was $18.2 million and $46.8 million, respectively.



Related Party Transactions



From time to time, borrowers have defaulted on their debt obligations to the Company. Some
of these obligations were incurred in connection with the development of properties that collateralize the Companys tax-exempt bonds. These properties are sometimes referred to as defaulted assets. In a number of these
circumstances, the Company has, after evaluating its options, chosen not to foreclose on the property. Instead, the Company has negotiated the transfer of a propertys deed in lieu of foreclosure to, or replaced the general partner of an
original borrowing partnership with, an entity controlled by certain officers of the Company, including MMA Affordable Housing, Inc. (MMAH) and MuniMae Foundation, Inc. (MMF). The Company has taken this action
to preserve the value of the original tax-exempt bond obligations and to maximize cash flow from the defaulted assets. The officers receive no monetary benefit from these transactions. Following the transfer of a property to, or replacement of the
general partner with, such entity, that entity controls the defaulted or previously defaulted asset, which serves as collateral for the debt to the Company.



During 2005, certain developers opted or were required to transfer to the Company or an affiliate of the Company all of their rights and interests in eleven properties,
as the developers had encountered substantial financial difficulties and/or had inadequately managed and supervised development of the underlying properties. Eight of the eleven properties were originally financed, in whole or in part, through
equity investments from tax credit equity funds that the Company sponsored (including some from guaranteed funds) and tax-exempt bond or taxable loan investments held by the Company. Two of the eleven properties had no Company debt and were
originally financed in part by equity investments from tax credit equity funds that the Company sponsored. One of the eleven properties had no equity investment sponsored by the Company and was financed in part by a tax-exempt bond investment and a
taxable loan investment held by the Company. The general partner interests in ten of the property partnerships were transferred to MMAH. The sole member interest in one of the property partnerships that is a not-for-profit was transferred to MMF.



During the third quarter of 2005, the Company continued to evaluate the risks,
funding needs and construction timelines of each of the above properties. To enable further development of certain of the properties, additional financial support has been provided depending upon the underlying facts and circumstances surrounding
each property. The Company will continue to evaluate and mitigate risks and economic impacts associated with providing additional financing to these properties and if necessary, where the Company is a senior debt holder, foreclosure as a possible
liquidation event.



The Company provided a taxable loan of $1.5 million to one
of the eleven properties. The Company continues to evaluate impairment risk related to all of the above-mentioned investments as each relates to the Company. During the third quarter of 2005, the Company recorded through a charge to impairments and
valuation allowances a loan loss reserve of $0.4 million related to taxable loans and an other-than-temporary impairment of $1.3 million related to one tax-exempt bond. As of September 30, 2005, two of the tax-exempt bonds are temporarily
impaired by $4.4 million and are carried at fair values below amortized cost through a charge to other comprehensive income. The total carrying value of the Companys investments in these properties was $62.1 million as of September 30,
2005.



The Company is exposed to or has experienced the following risks
associated with the above-mentioned investments: (1) we could decide to provide loans to the partnerships in order to complete the construction or rehabilitation of certain properties and to achieve stabilization of those properties which are
not substantially leased, and underperformance of these loans could result in losses to the Company; (2) the tax-exempt bonds secured by properties held in these partnerships could become other-than-temporarily impaired resulting in a loss
recorded in the condensed consolidated statements of income; (3) we could be called upon to make payments pursuant to our yield guarantees related to properties held in sponsored guaranteed funds; (4) a bankruptcy by the replaced general
partners or the construction companies involved in these properties or their affiliates may give rise to additional claims concerning these partnerships; and (5) we may foreclose on the properties related to our debt investments, which
foreclosure could result in losses to the Company.



The Companys 2004
Form 10-K contains a detailed description of the Companys related party transactions. There have been no other material changes since December 31, 2004 to the information related to the Companys related party transactions.



Income Tax Considerations



The Companys 2004 Form 10-K contains a detailed description of the Companys
income tax considerations. There has been no material change since December 31, 2004 to the information related to income tax considerations.



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##### Table of Contents

|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------



There has been no material change since December 31, 2004 to the information included in Item 7A of the Companys 2004 Form 10-K.



|Item 4. | Controls and Procedures
|------- | -----------------------



Based on their evaluation as of September 30, 2005, the Companys management, including its Chief Executive Officer and President and its Chief Financial
Officer, has concluded that the Companys disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 are effective. No change occurred in the Companys internal control over
financial reporting (as defined in Rule 13a-15(f)) during the Companys last fiscal quarter which was identified in connection with the evaluation required by Rule 13a-15(a) as materially affecting, or reasonably likely to materially
affect, the Companys internal control over financial reporting.



Our
on-going review and monitoring of internal control over financial reporting does not currently cover, and will not cover by the fiscal year ending December 31, 2005, MRC (formerly MONY Realty Capital, Inc.), which was acquired in February 2005
and Glaser, which was acquired in July 2005. By the end of this fiscal year, management will not be able to fully assess the effectiveness of internal control over financial reporting for these business units because MRC and Glaser were acquired by
the Company during 2005, and management believes it will not be possible for it to conduct a complete assessment of the internal controls during the integration of these entities.



However, management has commenced its assessment of MRCs internal control over financial reporting and will commence its assessment of
Glasers internal control over financial reporting during the fourth quarter of 2005. Management expects to have completed its assessments by December 31, 2006, the date upon which management is required to have completed its assessments
of MRC and Glaser under current law. These acquisitions are described in Note 3 to our condensed consolidated financial statements.



46



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##### Table of Contents

PART II  OTHER INFORMATION



|Item 1. | Legal Proceedings.
|------- | ------------------



We are party to various legal proceedings from time to time, none of which we currently deem to be material.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------



|(a) | None.
|--- | -----



|(b) | None.
|--- | -----



|(c) | The following table summarizes the Companys purchases of common shares during the first quarter of 2005:
|--- | ---------------------------------------------------------------------------------------------------------





|                                      |  |                               |  |                            |       |                                                                              |        |                                                                                |          
|------------------------------------- |  | ----------------------------- |  | -------------------------- | ----- | ---------------------------------------------------------------------------- | ------ | ------------------------------------------------------------------------------ | ---------
|Issuer Purchases of Equity Security  
|                                      |  |                               |  |                           
|Period                                |  | TotalNumber ofSharesPurchased |  | AveragePrice Paidper Share |       | Total Number ofShares Purchasedas Part of PubliclyAnnounced Plansor Programs |        | Maximum Numberof Shares that MayYet be PurchasedUnder the Plans orPrograms (1)
|January 1, 2005 to January 31, 2005   |  |                              |  | $                          |      |                                                                              |       |                                                                                | 1,500,000
|February 1, 2005 to February 28, 2005 |  |                              |  |                            |      |                                                                              |       |                                                                                | 1,500,000
|March 1, 2005 to March 31, 2005       |  | 56,300                        |  |                            | 24.36 |                                                                              | 56,300 |                                                                                | 1,443,700
|                                      |  |                               |  |                            |       |                                                                              |        |                                                                                |          
|Total                                 |  | 56,300                        |  | $                          | 24.36 |                                                                              | 56,300 |                                                                                | 1,443,700
|                                      |  |                               |  |                            |       |                                                                              |        |                                                                                |          



|(1) | The Company announced on July 24, 2002, a share repurchase plan authorizing a repurchase of up to 1.5 million common shares.
|--- | ----------------------------------------------------------------------------------------------------------------------------



There were no share repurchases during the second or third quarters of 2005.



|Item 3. | Defaults Upon Senior Securities.
|------- | --------------------------------



None.



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------



At the annual meeting of the Companys shareholders held on June 2, 2005, the shareholders voted on the election of certain members of the Companys board
of directors. Each of the nominees for director was elected by the shareholders. The election results were as follows: Charles C. Baum (34,597,090 in favor and 260,679 abstaining), Mark K. Joseph (34,617,898 in favor and 239,871 abstaining) and
Arthur S. Mehlman (34,625,395 in favor and 232,374 abstaining).



|Item 5. | Other Information.
|------- | ------------------



On November 4, 2005, MMA Financial Warehousing, LLC and MMA Financial Bond Warehousing, LLC, as borrowers, the Company, MMA Financial Holdings, Inc., MMA Equity Corporation, MMA Financial TC Corp., MMA Financial
BFGLP, LLC, MMA Financial BFRP, Inc., MMA Financial BFG Investments, LLC and MMA Special Limited Partner, Inc., as guarantors, and Bank of America, N. A., as administrative agent and lender, and the other lenders party thereto entered into a Fifth
Amended and Restated Revolving Loan and Letter of Credit Agreement (the Tax CreditWarehouse Agreement), allowing the borrowers to borrow, repay and re-borrow, on a secured basis, up to $140.0 million for the purpose of
financing the acquisition of interests in partnerships that receive and distribute low-income housing tax credits to investors and the warehousing such interests prior to syndication to third party investors. The Tax Credit Warehouse Agreement also
provides for the issuance of letters of credit in connection with such investments. The Tax Credit Warehouse Agreement will mature on November 3, 2006. Also on November 4, 2005, the Company and Bank of America, N.A. entered into that certain
Guaranty Agreement, dated as of November 4, 2005 (the Guaranty Agreement, and together with the Tax Credit Warehouse Agreement, the Credit Facility). The Tax Credit Warehouse Agreement and the Guaranty Agreement
are both attached to this Quarterly Report as exhibits and are incorporated herein by reference.



Borrowings under the Credit Facility bear interest at a floating rate of interest determined by reference to Bank of Americas prime rate or to a LIBOR based rate of interest plus a margin. The Company is
required to co-fund a certain percentage of each investment financed under the Credit Facility. The Company may prepay advances under the Credit Facility at any time without premium or penalty other than standard LIBOR breakage costs. The Company
will pay a fee on the unused portion of the commitment under the Credit Facility and certain other fees.



The Credit Facility contains terms and provisions (including representations, covenants and conditions) customary for agreements of this type. Financial covenants applicable to the Company on a consolidated basis
include maintenance of minimum unencumbered liquidity, minimum consolidated tangible net worth, maximum consolidated leverage ratio, maximum ratio of consolidated senior indebtedness to consolidated tangible net worth and minimum consolidated
interest and distribution coverage ratio. Financial covenants applicable to MMA Equity Corporation and MMA Financial TC Corp. and their subsidiaries on a consolidated basis include minimum consolidated net worth, minimum ratio of consolidated cash
available for distribution plus consolidated fixed charges to consolidated fixed charges, and minimum consolidated cash available for distribution. Other covenants include restrictions on the ability of the Company to, among other things, create
liens on or dispose of the assets of MMA Equity Corporation and MMA Financial TC Corp. and their subsidiaries and assets pledged in connection with the facility; engage in mergers, dissolutions, liquidations or consolidations; sell substantially all
of its assets or its interests in the borrowers and the guarantors; make certain changes to its and its subsidiaries organizational structure; pay dividends or make other capital distributions; change the nature of the Companys business;
and engage in transactions with affiliates. Additional restrictions apply to the activities of the Companys subsidiaries that are involved in the low-income housing tax credit business, including the borrowers and MMA Special Limited Partner,
Inc.



The Credit Agreement contains customary events of default, including
nonpayment of principal, interest, cofunding amounts, fees or other amounts; violation of covenants; inaccuracy of representations and warranties; cross-defaults to other material indebtedness; certain bankruptcy events; material judgments; the
invalidity of the loan documents; and the occurrence of a material adverse change in the financial condition or results of operations of the borrowers or any guarantor. If an event of default occurs and is continuing under the Credit Agreement,
payment of all amounts outstanding under the Credit Agreement may be accelerated and the lenders commitments may be terminated.



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|Item 6. | Exhibits
|------- | --------



See Exhibit Index immediately preceding the exhibits.



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SIGNATURES



Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.



|                       |  |  |  |                                  |  |                            |  |                                                                                                      
|---------------------- |  |  |  | -------------------------------- |  | -------------------------- |  | -----------------------------------------------------------------------------------------------------
|                       |  |  |  | MUNICIPAL MORTGAGE & EQUITY, LLC
|                       |  |  | 
|DATE: November 8, 2005 |  |  |  | By:                              |  | /s/    WILLIAM S.
HARRISON
|                       |  |  |  |                                  |  |                            |  | William S. Harrison Chief Financial Officer (Duly Authorized Officer and Principal Financial
Officer)



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EXHIBIT INDEX



|            |  |                                                                                                                                                                                                                                                       |  |                                                                                                            
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                           |  | Incorporation by Reference                                                                                 
|            |  |                                                                                                                                                                                                                                                      
|2.1         |  | Agreement of Merger, dated as of August 1, 1996, by and between SCA Tax Exempt Fund Limited Partnership and the Company                                                                                                                               |  | Incorporated by reference to the Companys Registration Statement on Form S-4 (No. 3399088)               
|            |  |                                                                                                                                                                                                                                                      
|2.2         |  | Purchase and Sale Agreement, dated as of May 14, 2003, by and among Lend Lease Corporation Limited, BFG-GP, Inc., Lend Lease (US) Services, Inc., Lend Lease Real Estate Investments, Inc.,
Midland Financial Holdings, Inc., and MMA Financial, Inc. |  | Incorporated by reference to the Companys Current Report on Form 8K filed on July 10, 2003               
|            |  |                                                                                                                                                                                                                                                      
|2.3         |  | Stock Purchase Agreement, dated as of June 8, 2005, by and between David Williams, Kevin Filter, MMA Mortgage Investment Corporation and the Company (the Glaser Stock Purchase
Agreement)                                                          |  | Incorporated by reference to the Companys Current Report on Form 8-K filed on June 10, 2005.              
|            |  |                                                                                                                                                                                                                                                      
|2.3.1       |  | Amendment No. 1 to the Glaser Stock Purchase Agreement, dated as of July 1, 2005, by and between David Williams, Kevin Filter, MMA Mortgage Investment Corporation and the Company                                                                    |  |                                                                                                            
|            |  |                                                                                                                                                                                                                                                      
|3.1         |  | Amended and Restated Certificate of Formation and Operating Agreement of the Company                                                                                                                                                                  |  | Incorporated by reference to the Companys Annual Report on Form 10K for the year ended December 31, 2002 
|            |  |                                                                                                                                                                                                                                                      
|3.2         |  | Amended and Restated Bylaws of the Company                                                                                                                                                                                                            |  | Incorporated by reference to the Companys Annual Report on Form 10K for the year ended December 31, 2003 
|            |  |                                                                                                                                                                                                                                                      
|4.1         |  | Specimen Common Share Certificate                                                                                                                                                                                                                     |  |                                                                                                            
|            |  |                                                                                                                                                                                                                                                      
|4.2         |  | Indenture, dated as of May 3, 2004, by and between MMA Financial Holdings, Inc. and Wilmington Trust Company                                                                                                                                          |  | Incorporated by reference to the Companys Annual Report on Form 10K for the year ended December 31, 2004 
|            |  |                                                                                                                                                                                                                                                      
|10.1        |  | Master Repurchase Agreement by and among the Company, Trio Portfolio Investors, LLC, Rio Portfolio Partners, LP, Blackrock Capital Finance, LP, Brazos Fund, LP and M.F. Swapco, Inc. dated as
of June 30, 1997                                       |  | Incorporated by reference to the Companys Current Report on Form 8K filed on January 23, 1998            
|            |  |                                                                                                                                                                                                                                                      
|10.2        |  | Stock Purchase and Contribution Agreement by and between the Company and Robert J. Banks, Keith J. Gloeckl and Ray F. Mathis dated September 30, 1999                                                                                                 |  | Incorporated by reference to the Companys Current Report on Form 8K filed on November 8, 1999            
|            |  |                                                                                                                                                                                                                                                      
|10.3        |  | Registration Rights Agreement by and among the Company and Robert J. Banks, Keith J. Gloeckl and Ray F. Mathis, as holders of the Companys common shares, dated October 20,
1999                                                                     |  | Incorporated by reference to the Companys Current Report on Form 8-K filed on November 2, 1999, as amended
|            |  |                                                                                                                                                                                                                                                      
|10.4        |  | Amended and Restated Master Recourse Agreement by and among the Federal National Mortgage Association, the Company and MMACAP, LLC dated as of December 1, 2000                                                                                       |  | Incorporated by reference to the Companys Annual Report on Form 10K for the year ended December 31, 2004 



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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                  
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.5    |  | Credit Agreement, dated as of November 12, 2004, as amended, among MuniMae TEI Holdings, LLC, MMA Construction Finance, LLC and MMA Mortgage Investment Corporation, as borrowers, the Company, as
guarantor, Bank of America, N.A., as administrative agent, U.S. Bank National Association, RBC Capital Markets and CitiCorp USA, Inc., as co-syndication agents, and the other lenders party thereto                                                                                                                                                                                         |  | Incorporated by reference to the Companys Current Report on Form 8K filed on November 17, 2004                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.6.1  |  | Fifth Amended and Restated Revolving Loan and Letter of Credit Agreement (the Tax Credit Warehousing Agreement), dated as of November 4, 2005, by and among MMA Financial Warehousing,
LLC and MMA Financial Bond Warehousing, LLC, as borrowers, the Company, MMA Financial Holdings, Inc., MMA Equity Corporation, MMA Financial TC Corp., MMA Financial BFGLP, LLC, MMA Financial BFRP, Inc., MMA Financial BFG Investments, LLC and MMA
Special Limited Partner, Inc., as guarantors, and Bank of America, N.A., as administrative agent and lender, and the other lenders party thereto* |  |                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.6.2  |  | Guaranty Agreement, dated as of November 4, 2005, by Municipal Mortgage & Equity, LLC in favor of Bank of America, N.A., in its capacity as agent for the banks under the Tax Credit Warehouse
Agreement*                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.7    |  | Amended and Restated Credit Agreement, dated July 1, 2005, by and between MMA Mortgage Investment Corporation and U.S. Bank National Association.                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Incorporated by reference to the Companys Current Report on Form 8-K filed on July 7, 2005, as amended          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.8    |  | Municipal Mortgage & Equity, LLC 1998 Share Incentive Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.9    |  | Municipal Mortgage & Equity, LLC 1998 NonEmployee Directors Share Incentive Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.10   |  | Municipal Mortgage & Equity, LLC 2001 Share Incentive Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.11   |  | Municipal Mortgage & Equity, LLC 2001 NonEmployee Directors Share Incentive Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.12   |  | Municipal Mortgage & Equity, LLC 2004 NonEmployee Directors Share Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | Incorporated by reference to the Companys Quarterly Report on Form 10Q for the quarter ended September 30, 2004
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.13   |  | Municipal Mortgage & Equity, LLC Amended and Restated 2004 Share Incentive Plan and Form of Deferred Share Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | Incorporated by reference to the Companys Quarterly Report on Form 10Q for the quarter ended September 30, 2004
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.14.1 |  | Employment Agreement by and between the Company and Mark K. Joseph dated as of July 1, 2003 (the M. Joseph Employment Agreement)                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | Incorporated by reference to the Companys Annual Report on Form 10K for the year ended December 31, 2003       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.14.2 |  | Amendment to the M. Joseph Employment Agreement by and between the Company and Mark K. Joseph dated as of January 1, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | Incorporated by reference to the Companys Annual Report on Form 10-K for the year ended December 31, 2004       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.15   |  | Employment Agreement by and between the Company and Michael L. Falcone dated as of July 1, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | Incorporated by reference to the Companys Annual Report on Form 10K for the year ended December 31, 2004       

---

|* | Confidential treatment has been requested for certain portions of this Exhibit pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, which portions have been
omitted and filed separately with the Securities and Exchange Commission.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|      |  |                                                                                                      |  |                                                                                                             
|----- |  | ---------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------
|      |  |                                                                                                     
|10.16 |  | Employment Agreement by and between the Company and Earl W. Cole, III dated as of July 1, 2003       |  | Incorporated by reference to the Companys Annual Report on Form 10K for the year ended December 31, 2003  
|      |  |                                                                                                     
|10.17 |  | Employment Agreement by and between the Company and Keith J. Gloeckl dated as of July 1, 2003        |  | Incorporated by reference to the Companys Annual Report on Form 10K for the year ended December 31, 2003  
|      |  |                                                                                                     
|10.18 |  | Employment Agreement by and between the Company and Gary A. Mentesana dated as of July 1, 2003       |  | Incorporated by reference to the Companys Annual Report on Form 10K for the year ended December 31, 2003  
|      |  |                                                                                                     
|10.19 |  | Employment Agreement by and between the Company and Jenny Netzer dated as of July 1, 2003            |  | Incorporated by reference to the Companys Annual Report on Form 10K for the year ended December 31, 2003  
|      |  |                                                                                                     
|10.20 |  | Employment Agreement by and between the Company and Charles M. Pinckney dated as of July 1, 2003     |  | Incorporated by reference to the Companys Annual Report on Form 10K for the year ended December 31, 2003  
|      |  |                                                                                                     
|10.21 |  | Employment Agreement by and between the Company and Frank G. Creamer, Jr. dated as of August 1, 2004 |  | Incorporated by reference to the Companys Quarterly Report on Form 10Q for the quarter ended June 30, 2004
|      |  |                                                                                                     
|10.22 |  | Employment Agreement between the Company and Melanie M. Lundquist dated as of December 31, 2004      |  | Incorporated by reference to the Companys Current Report on Form 8K filed on April 1, 2005                
|      |  |                                                                                                     
|31.1  |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  |  |                                                                                                             
|      |  |                                                                                                     
|31.2  |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  |  |                                                                                                             
|      |  |                                                                                                     
|32.1  |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  |  |                                                                                                             
|      |  |                                                                                                     
|32.2  |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  |  |                                                                                                             



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