UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


(Mark One)


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934


                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007


                                       OR


[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF  THE  SECURITIES
     EXCHANGE ACT OF 1934


                         Commission File Number 1-13237



                           CENTERLINE HOLDING COMPANY
                              (Formerly CharterMac)
         (Exact name of Registrant as specified in its Trust Agreement)



            DELAWARE                                    13-3949418
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)


 625 MADISON AVENUE, NEW YORK, NEW YORK                   10022
(Address of principal executive offices)                (Zip Code)



                                 (212) 317-5700
               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. Yes [X] No [ ]


Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer or a  non-accelerated  filer (as defined in Rule 12b-2 of the
Exchange Act). Large Accelerated filer [X] Accelerated filer [ ] Non-accelerated
filer [ ]


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


As of October 31, 2007,  50,276,852  of the  registrant's  shares of  beneficial
interest were outstanding.


<PAGE>

                                TABLE OF CONTENTS

                           CENTERLINE HOLDING COMPANY

                                    FORM 10-Q




                                                                            PAGE

PART I - FINANCIAL INFORMATION

Item 1.    Financial Statements                                                3
Item 2.    Management's Discussion and Analysis of Financial
             Condition and Results of Operations                              34
Item 3.    Quantitative and Qualitative Disclosures about Market Risk         62
Item 4.    Controls and Procedures                                            63


PART II - OTHER INFORMATION

Item 1.    Legal Proceedings                                                  64
Item 1A.   Risk Factors                                                       64
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds        66
Item 3.    Defaults Upon Senior Securities                                    66
Item 4.    Submission of Matters to a Vote of Security Holders                66
Item 5.    Other Information                                                  66
Item 6.    Exhibits                                                           66


SIGNATURES                                                                    67


                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

                           CENTERLINE HOLDING COMPANY
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                       September 30,   December 31,
                                                                           2007            2006
                                                                       ------------    ------------
                                                                       (Unaudited)
<S>                                                                    <C>             <C>
                                     ASSETS

Cash and cash equivalents                                              $    128,545    $    178,907
Restricted cash                                                              24,662          14,843
Mortgage revenue bonds-at fair value (Note 2)                             2,578,107       2,397,738
Other investments (Note 3)                                                  308,184         335,854
Investments in and loans to affiliates (Note 17)                             59,819          65,849
Goodwill and intangible assets, net (Note 4)                                517,013         541,050
Deferred costs and other assets, net (Note 5)                               146,912         149,589
Investments held by consolidated partnerships (Note 15)                   6,206,902       4,965,907
Other assets of consolidated partnerships (Note 15)                       1,111,827       1,038,779
                                                                       ------------    ------------

Total assets                                                           $ 11,081,971    $  9,688,516
                                                                       ============    ============

                             LIABILITIES AND EQUITY

Liabilities:
  Financing arrangements (Note 6)                                      $  1,900,820    $  1,801,170
  Notes payable (Note 6)                                                    640,948         591,165
  Preferred shares of subsidiary (subject to mandatory repurchase)          273,500         273,500
  Accounts payable, accrued expenses and other liabilities (Note 8)         236,090         214,344
  Liabilities of consolidated partnerships (Note 15)                      3,164,227       2,700,154
                                                                       ------------    ------------

Total liabilities                                                         6,215,585       5,580,333
                                                                       ------------    ------------

Minority interests in subsidiaries, net of tax (Note 9)                     220,196         247,390
Preferred shares of subsidiary (not subject to mandatory repurchase)        104,000         104,000
Limited partners' interests in consolidated partnerships                  3,705,564       2,806,661

Commitments and contingencies (Note 18)

Shareholders' equity:
  Beneficial owners' equity:
    4.4% Convertible CRA preferred shares; no par value;
      2,160 shares issued and outstanding in 2007 and 2006                  104,498         104,498
    Convertible CRA shares; no par value; 6,552 shares issued
      and outstanding in 2007 and 2006                                       88,936          97,499
    Special preferred voting shares; no par value; 14,693
      shares issued and outstanding in 2007 and 14,825 shares
      issued and outstanding in 2006                                            147             148
    Common shares; no par value; 160,000 shares authorized;
      53,590 issued and 50,291 outstanding in 2007 and 52,746
      issued and 51,343 outstanding in 2006                                 660,191         709,142
    Treasury shares of beneficial interest - common, at cost;
      3,300 shares in 2007 and 1,403 shares in 2006                         (63,276)        (28,018)
  Accumulated other comprehensive income                                     46,130          66,863
                                                                       ------------    ------------
Total shareholders' equity                                                  836,626         950,132
                                                                       ------------    ------------

Total liabilities and equity                                           $ 11,081,971    $  9,688,516
                                                                       ============    ============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                           Three Months Ended             Nine Months Ended
                                                              September 30,                 September 30,
                                                       --------------------------    --------------------------
                                                           2007           2006           2007          2006
                                                       -----------    -----------    -----------    -----------
<S>                                                    <C>            <C>            <C>            <C>
Revenues:
  Mortgage revenue bond interest income                $    36,346    $    39,370    $   111,977    $   114,802
  Other interest income                                     18,693          7,474         45,922         20,001
  Fee income                                                24,033         30,763         58,614         68,138
  Other revenues                                             3,987          5,604         12,136         13,721
  Revenues of consolidated partnerships (Note 15)           75,292         24,737        181,931         42,348
                                                       -----------    -----------    -----------    -----------

  Total revenues                                           158,351        107,948        410,580        259,010
                                                       -----------    -----------    -----------    -----------

Expenses:
  Interest expense                                          41,980         25,649         99,723         67,242
  Interest expense of consolidated partnerships
   (Note 15)                                                25,772         13,381         72,086         25,938
  Interest expense - distributions to preferred
   shareholders of subsidiary                                4,724          4,724         14,173         14,173
  General and administrative (Note 12)                      44,292         43,679        144,656        116,105
  Depreciation and amortization                             12,041         10,832         34,133         33,961
  Write-off of intangible assets                                --          2,547             --          2,547
  Impairment of mortgage revenue bonds and other
   assets (Note 2)                                             548            394         19,933          2,665
  Other expenses of consolidated partnerships
   (Note 15)                                                26,606         18,519         79,568         50,058
                                                       -----------    -----------    -----------    -----------

  Total expenses                                           155,963        119,725        464,272        312,689
                                                       -----------    -----------    -----------    -----------

Gain (loss) before other income                              2,388        (11,777)       (53,692)       (53,679)

Other income (loss):
  Equity and other income (loss)                               327         (3,777)           (77)           589
  Repayment of mortgage revenue bonds and sales of
   other assets                                              3,408          8,289          6,996         16,257
  Investments held by consolidated partnerships, net
   (Note 15)                                               (72,182)       (68,996)      (212,493)      (209,075)
                                                       -----------    -----------    -----------    -----------

Loss before allocations                                    (66,059)       (76,261)      (259,266)      (245,908)

(Income)/Loss Allocations:
  Preferred shares of subsidiary                            (1,556)        (1,556)        (4,669)        (4,669)
  Minority interests in subsidiaries, net of tax
   (Note 9)                                                 (5,307)        (5,771)          (898)       (13,301)
  Partners of consolidated partnerships, net
   (Note 15)                                                82,003        105,392        260,890        301,263
                                                       -----------    -----------    -----------    -----------

Income (loss) before income taxes                            9,081         21,804         (3,943)        37,385
Income tax benefit (provision)                               1,561         (7,233)         4,820         (3,909)
                                                       -----------    -----------    -----------    -----------

Net income                                                  10,642         14,571            877         33,476

4.4% CRA Preferred dividend requirements                    (1,188)        (1,188)        (3,564)        (3,564)
                                                       -----------    -----------    -----------    -----------

Net income (loss) available to Common/CRA
  shareholders                                         $     9,454    $    13,383    $    (2,687)   $    29,912
                                                       ===========    ===========    ===========    ===========

Net income (loss) per share (Note 13):
  Basic and diluted                                    $      0.17    $      0.23    $     (0.05)   $      0.51
                                                       ===========    ===========    ===========    ===========

Weighted average shares outstanding:
  Basic                                                     56,582         58,015         57,248         58,409
                                                       ===========    ===========    ===========    ===========
  Diluted                                                   57,263         58,396         57,248         58,830
                                                       ===========    ===========    ===========    ===========

Dividends declared per share                           $      0.42    $      0.42    $      1.26    $      1.26
                                                       ===========    ===========    ===========    ===========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>

                           CENTERLINE HOLDING COMPANY
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                   Nine Months Ended
                                                                                      September 30,
                                                                                ------------------------
                                                                                   2007          2006
                                                                                ----------    ----------
<S>                                                                             <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                    $      877    $   33,476
  Reconciling items:
    Gain on repayment of mortgage revenue bonds and sale of other assets, net         (972)       (1,879)
    Impairment of mortgage revenue bonds and other assets                           19,933         2,665
    Depreciation and amortization                                                   34,133        33,961
    Write-off of intangible assets                                                      --         2,547
    Equity in unconsolidated entities                                                   77          (589)
    Distributions received from equity investees                                        41         4,469
    Income allocated to preferred shares of subsidiary                               4,669         4,669
    Income allocated to minority interests in subsidiaries                             898        13,301
    Non-cash compensation expense                                                   22,758        12,583
    Other non-cash income                                                           (3,580)       (1,368)
    Deferred taxes                                                                   1,188         3,153
    Reserves for bad debt                                                            5,468         1,468
    Changes in operating assets and liabilities, net of acquisitions:
      Mortgage servicing rights                                                     (5,054)       (7,046)
      Mortgage loans held for sale                                                  58,554        94,668
      Loan to affiliate                                                            (24,300)           --
      Deferred revenues                                                              8,735        16,645
      Restructuring costs payable                                                   (1,042)        1,182
      Receivables                                                                   65,287       (43,784)
      Other assets                                                                    (295)       (5,442)
      Accounts payable, accrued expenses and other liabilities                      11,014        33,108
                                                                                ----------    ----------
Net cash flow from operating activities                                         $  198,389    $  197,787
                                                                                ----------    ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition and funding of mortgage revenue bonds                             $ (173,233)   $ (298,285)
  Repayments of mortgage revenue bonds                                              26,220        82,091
  Acquisition of mortgage loans held for investment                               (164,130)       (1,986)
  Repayments of mortgage loans held for investment                                 173,282        48,732
  Acquisitions of subsidiaries, net of cash acquired                                    --      (262,800)
  Advances to partnerships                                                        (154,525)     (119,350)
  Collection of advances to partnerships                                           129,163       126,781
  Deferred investment acquisition costs                                             (1,154)       (5,334)
  (Increase) decrease in restricted cash                                            (9,819)       19,881
  Investments in marketable securities                                             (30,000)      (23,428)
  Acquisition of AMAC common and preferred stock                                   (11,564)           --
  Return of capital from equity investee                                                --        11,667
  Other investing activities                                                        (3,090)         (789)
  Equity investments                                                               (33,099)      (23,103)
                                                                                ----------    ----------
Net cash flow from investing activities                                         $ (251,949)   $ (445,923)
                                                                                ----------    ----------
</TABLE>

                                   (CONTINUED)

     See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>

                   CENTERLINE HOLDING COMPANY AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                              Nine Months Ended
                                                                                September 30,
                                                                         --------------------------
                                                                             2007           2006
                                                                         -----------    -----------
<S>                                                                      <C>            <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
  Distributions to shareholders                                          $   (78,797)   $   (77,822)
  Distributions to preferred shareholders of subsidiary                       (4,669)        (4,669)
  Distributions to minority interests in consolidated subsidiaries           (29,315)       (26,681)
  Proceeds from financing arrangements                                       179,278      1,243,413
  Repayments of financing arrangements                                       (79,628)      (974,989)
  Increase in notes payable                                                   49,783         93,982
  Minority interest contribution                                               3,225          3,300
  Retirement of minority interests and special preferred voting shares        (2,803)          (723)
  Treasury stock purchases                                                   (33,345)       (17,822)
  Deferred financing costs                                                      (531)        (8,908)
                                                                         -----------    -----------

Net cash flow from financing activities                                        3,198        229,081
                                                                         -----------    -----------

                                                                             (50,362)       (19,055)
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year                       178,907        161,295
                                                                         -----------    -----------

Cash and cash equivalents at the end of the period                       $   128,545    $   142,240
                                                                         ===========    ===========


Acquisition activity:
  Conversion of existing investments                                                    $    13,997
  Non-cash minority interests issued                                                          4,859
  Assets acquired                                                                          (345,047)
  Liabilities assumed                                                                        63,391
                                                                                        -----------
Net cash paid for acquisitions                                                          $  (262,800)
                                                                                        ===========

Non-cash investing and financing activities:
  Share grants issued                                                    $    16,106    $    39,150
  Treasury stock purchases via employee withholding                      $     1,917    $       436
  Conversion of minority interests to common shares                      $        --    $     1,954
  Cancellation of acquisition-related minority interests                 $        --    $    (2,497)
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       6
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - GENERAL

A. PRINCIPLES OF CONSOLIDATION

Centerline  Holding  Company,  formerly  known as  CharterMac,  is,  through its
subsidiaries,  a full service investing and finance company with a core focus on
real  estate.  The  condensed  consolidated  financial  statements  include  the
accounts of  Centerline  Holding  Company,  its wholly owned and majority  owned
subsidiary  statutory trusts,  other non-trust  subsidiary companies it controls
and  entities  consolidated  pursuant to the  adoption of  Financial  Accounting
Standards  Board ("FASB")  Interpretation  ("FIN") No. 46(R),  CONSOLIDATION  OF
VARIABLE  INTEREST  ENTITIES  ("FIN  46(R)").  All  intercompany   accounts  and
transactions have been eliminated in consolidation.  Unless otherwise indicated,
"the Company",  "we",  "our",  "us" and  "Centerline",  as used  throughout this
document,   refers  to   Centerline   Holding   Company  and  its   consolidated
subsidiaries. For certain of the entities identified throughout this document as
"consolidated partnerships", the financial information included is as of and for
the periods ended June 30, 2007,  the latest  practical date available (see Note
15).

B. ORGANIZATION

Effective  January 1, 2007,  we began  reporting  our  segment  results  under a
reorganized structure including five business segments:

     1.   Affordable Housing brings together the users and providers of debt and
          equity capital to the affordable  multifamily rental housing industry,
          and includes:

          o    Mortgage  Revenue  Bond  Investing  - through  the parent and our
               subsidiaries,  we invest  primarily in tax-exempt  first mortgage
               revenue  bonds  issued  by  various  state or local  governments,
               agencies or authorities.  The proceeds of these mortgage  revenue
               bonds  are  used to  finance  the new  construction,  substantial
               rehabilitation,   acquisition,   or   refinancing  of  affordable
               multifamily  housing  properties  located  throughout  the United
               States; and
          o    Tax Credit Fund Management - through our subsidiaries,  we manage
               funds that  invest in  Low-Income  Housing  Tax Credit  ("LIHTC")
               properties.    Managing   these   funds   involves   origination,
               underwriting  and management  reporting.  With respect to certain
               LIHTC equity investment funds, our subsidiaries provide specified
               returns to investors.

     2.   Commercial  Real Estate  provides a broad  spectrum of  financing  and
          investment  products  for  multifamily,  office,  retail,  industrial,
          mixed-use and other properties, and includes:

          o    High Yield CMBS Fund  Management - through our  subsidiaries,  we
               co-invest   in  and  manage  funds  that  invest  in  high  yield
               commercial mortgage-backed securities ("CMBS") investments;
          o    Direct  Loan Fund  Management  -  through  our  subsidiaries,  we
               co-invest  in and  manage a fund that  primarily  invests in real
               estate  finance   products,   including   first  mortgage  loans,
               subordinated notes, bridge loans and mezzanine loans;
          o    Management of American  Mortgage  Acceptance  Company  ("AMAC") -
               AMAC is a publicly-traded  real estate investment trust we manage
               through a  subsidiary  (see Note 17). It invests in similar  real
               estate  products as the Direct Loan Fund mentioned  above as well
               as CMBS,  collateralized  debt obligation  ("CDO") securities and
               government insured mortgage securities;
          o    Real Estate  Equity Fund  Management - through a  subsidiary,  we
               co-invest in and manage a fund that invests in real estate equity
               joint ventures; and
          o    Debt Product Origination - through our subsidiaries, we originate
               and  underwrite  debt products for the funds we manage as well as
               third parties, including:

               o    The Federal National Mortgage Association ("Fannie Mae");

               o    The Federal Home Loan Mortgage Corporation ("Freddie Mac");

               o    The Federal Housing Authority ("FHA");

               o    The Government National Mortgage Association ("GNMA");

               o    AMAC; and

               o    Insurance companies and conduits.

          o    Primary  Servicing  -  through  our   subsidiaries,   we  provide
               multifamily and commercial loan servicing for third parties.

                                       7
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


          Through this  segment,  we may also invest in other  entities and hold
          investments  similar to those in the funds we manage. Such investments
          included  our  pre-acquisition  preferred  and common  investments  in
          Centerline  Investors I LLC  ("Investors"),  formerly ARCap Investors,
          L.L.C., and other loans to or investments in entities  associated with
          Commercial Real Estate, including AMAC.

     3.   Asset Management  comprises activities for monitoring and managing the
          Affordable Housing and Commercial Real Estate assets we own, for funds
          we manage, and for third parties. This segment includes:

          o    Loan Servicing - through our subsidiaries, we provide primary and
               special loan servicing for third parties and special servicing on
               investments  in which we, AMAC,  or the funds we manage,  invest;
               and
          o    Asset  management  services for  investments in which we, AMAC or
               the funds we manage, invest.

     4.   Credit  Risk  Products  provides  credit  intermediation,  through our
          subsidiaries,  primarily for the mortgage revenue bond securitizations
          in the Affordable  Housing segment.  Through this segment we also plan
          to invest in collateralized loan obligation ("CLO") securities secured
          by corporate debt instruments.

     5.   Consolidated  Partnerships  primarily  include the LIHTC equity,  high
          yield CMBS and  direct  loan  investing  funds we manage  through  the
          Affordable  Housing and Commercial  Real Estate  segments and property
          partnerships  which we are required to consolidate in accordance  with
          various accounting pronouncements.

     In  addition to these five  segments,  our  Corporate  group  includes  our
     central administrative, financing and acquisition related costs, assets and
     liabilities.

     In prior years, we had operated in different  business segments and we have
     reclassified the prior year segment results to reflect  comparability  with
     the current structure.

C. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been
prepared on a basis consistent with accounting  principles generally accepted in
the United States ("GAAP") for interim financial information and pursuant to the
rules of the  Securities  and  Exchange  Commission  ("SEC").  In the opinion of
management,   the  condensed   consolidated  financial  statements  contain  all
adjustments  (consisting  of only normal  recurring  adjustments)  necessary  to
present fairly the financial statements of the interim periods.  Given that some
of our businesses  have a higher volume of transactions in the second and fourth
quarterly  periods,  the  operating  results for the interim  periods may not be
indicative of the results for the full year.

These condensed  consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in
our Form 10-K for the year ended December 31, 2006,  which contains a summary of
our  significant  accounting  policies.  There have been no material  changes to
these items since  December  31, 2006.  New  accounting  pronouncements  pending
adoption  that may  have a  significant  impact  on our  condensed  consolidated
financial statements are described below.

We are responsible for the condensed  consolidated financial statements included
in this document.  The  preparation of financial  statements in conformity  with
GAAP  requires us to make  estimates  and  assumptions  that affect the reported
amounts of assets and  liabilities  and the disclosure of contingent  assets and
liabilities  at the date of the  financial  statements  as well as the  reported
amounts of revenues and expenses  during the reporting  period.  Actual  results
could differ from those estimates.

Certain  amounts from prior years have been  reclassified to conform to the 2007
presentation, including the revisions to our segment reporting as noted above.

D. NEW ACCOUNTING PRONOUNCEMENTS

Adopted
-------

As of January 1, 2007, we adopted  Statement of Financial  Accounting  Standards
("SFAS") No. 156, ACCOUNTING FOR SERVICING OF FINANCIAL Assets ("SFAS No. 156").
SFAS No. 156 stipulates the accounting for mortgage  servicing  rights  ("MSRs")
and requires  that they be recorded  initially at fair value.  SFAS No. 156 also
permits,  but does not require,  that we may  subsequently  record those MSRs at
fair value with changes in fair value recognized in the statement of operations.
Alternatively, we may continue to amortize the MSRs over their projected service
periods. We elected to continue  amortization of our MSRs and, therefore,  there
was no impact on our condensed consolidated financial statements.

                                       8
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


As of January 1, 2007,  we adopted FIN No. 48,  ACCOUNTING  FOR  UNCERTAINTY  IN
INCOME TAXES ("FIN 48"). FIN 48 sets a standard for  recognizing tax benefits in
a company's income statement based on a determination  whether it is more likely
than not  that the  position  would  withstand  audit,  without  regard  for the
likelihood   of  an  audit  taking   place.   Assuming  a  position   meets  the
"more-likely-than-not"  threshold,  FIN 48 also prescribes measurement standards
requiring  determination  of how much of the tax position  would  ultimately  be
allowed if challenged (see Note 10 regarding the impact of adoption).

Issued
------

In September 2006, the FASB issued SFAS No. 157, FAIR VALUE MEASUREMENTS  ("SFAS
No. 157"),  which established a framework for measuring the fair value of assets
and  liabilities as required by numerous other  accounting  pronouncements,  and
expands  disclosure  requirements  of the fair  values  of  certain  assets  and
liabilities. The provisions of this statement are effective for us on January 1,
2008. We are currently evaluating the impact the adoption of this Statement will
have on our consolidated financial statements.

In  February  2007,  the FASB issued  SFAS No.  159,  THE FAIR VALUE  OPTION FOR
FINANCIAL ASSETS AND FINANCIAL  LIABILITIES.  This statement was issued with the
intent to provide an  alternative  measurement  treatment for certain  financial
assets and liabilities.  The alternative  measurement would permit fair value to
be used for both initial and subsequent measurement,  with changes in fair value
recognized in earnings as those changes occur. This "Fair Value Option" would be
available on a contract by contract basis.  The provisions of this statement are
effective for us on January 1, 2008.  We do not plan to adopt the  provisions of
this statement.

In June 2007, the American Institute of Certified Public  Accountants  ("AICPA")
issued  Statement of Position  ("SOP") 07-1,  CLARIFICATION  OF THE SCOPE OF THE
AUDIT AND  ACCOUNTING  GUIDE  INVESTMENT  COMPANIES  AND  ACCOUNTING  FOR PARENT
COMPANIES AND EQUITY METHOD  INVESTORS FOR INVESTMENTS IN INVESTMENT  COMPANIES.
This SOP provides guidance for determining whether an entity is within the scope
of the AICPA Audit and  Accounting  Guide  INVESTMENT  COMPANIES  (the "Guide").
Entities  that are  within  the  scope of the Guide are  required,  among  other
things,  to carry investments at fair value, with changes in fair value included
in  earnings.  The  provisions  of this SOP were to become  effective  for us on
January 1, 2008. In October 2007, the FASB proposed an indefinite  delay of this
standard.  We continue to assess the impact the  adoption of this SOP would have
on our consolidated financial statements.


NOTE 2 - MORTGAGE REVENUE BONDS - AT FAIR VALUE

A. SUMMARY

The table presented below summarizes our mortgage revenue bond portfolio:
<TABLE>
<CAPTION>
                                      September 30,    December 31,
          (IN THOUSANDS)                  2007             2006
          -------------------------   ------------    ------------
          <S>                         <C>             <C>
          Amortized cost basis        $  2,852,122    $  2,727,372
          Gross unrealized gains           135,825         101,364
          Gross unrealized losses          (14,204)        (33,670)
                                      ------------    ------------
          Subtotal/fair value            2,973,743       2,795,066
             Less: eliminations (1)       (395,636)       (397,328)
                                      ------------    ------------
          Total fair value            $  2,578,107    $  2,397,738
                                      ============    ============
</TABLE>

(1)  Bonds  recorded  as either  liabilities  on the  balance  sheets of certain
     consolidated  partnerships  or as  liabilities  of real  estate  owned  and
     therefore eliminated in consolidation.

                                       9
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


The fair  value  and gross  unrealized  losses of our  mortgage  revenue  bonds,
aggregated  by length of time that  individual  bonds have been in a  continuous
unrealized loss position, is summarized in the table below:
<TABLE>
<CAPTION>
                          Less than       12 Months
(DOLLARS IN THOUSANDS)    12 Months        or More          Total
---------------------   -------------   -------------   -------------
<S>                     <C>             <C>             <C>
September 30, 2007

Number of bonds                    51              52             103
Fair value              $     352,788   $     443,150   $     795,938
Gross unrealized loss   $       5,507   $       8,697   $      14,204


December 31, 2006

Number of bonds                    76              60             136
Fair value              $     502,758   $     356,543   $     859,301
Gross unrealized loss   $      22,355   $      11,315   $      33,670
</TABLE>


We measure fair value for mortgage revenue bonds based upon expected future cash
flows discounted at rates that approximate current market conditions; therefore,
as rates rise the fair value of our portfolio decreases.  Principally because we
have the intent and ability to hold these bonds to recovery,  we have  concluded
that these declines in value are temporary.

The table below  summarizes the maturity dates of mortgage revenue bonds we held
as of September 30, 2007:
<TABLE>
<CAPTION>
                                                                                      Weighted
                                   Number of       Outstanding                         Average
(DOLLARS IN THOUSANDS)               Bonds         Bond Amount      Fair Value      Interest Rate
------------------------------   -------------    -------------    -------------    -------------
<S>                                        <C>    <C>              <C>                       <C>
Due in less than one year                    3    $      15,174    $      16,351             5.95%
Due between one and five years              38           76,382           76,277             5.71%
Due after five years                       349        2,784,070        2,881,115             6.59%
                                 -------------    -------------    -------------    -------------
Total / weighted average                   390        2,875,626        2,973,743             6.56%
                                                                                    =============
  Less: eliminations (1)                   (44)        (395,160)        (395,636)
                                 -------------    -------------    -------------

  Total                                    346    $   2,480,466    $   2,578,107
                                 =============    =============    =============
</TABLE>

(1)  Bonds are recorded  either as  liabilities on the balance sheets of certain
     consolidated  partnerships  or as  liabilities  of real  estate  owned  and
     therefore eliminated in consolidation.


B. PORTFOLIO ACTIVITY

The table presented below summarizes our portfolio  acquisition activity for the
nine months ended September 30, 2007:
<TABLE>
<CAPTION>
                                                                       Weighted        Weighted
                                                                        Average         Average
                                       Number of        Face         Construction       Permanent
(DOLLARS IN THOUSANDS)                Bonds (1)      Amount (2)     Interest Rate    Interest Rate
---------------------------------   -------------   -------------    -------------    -------------
<S>                                            <C>  <C>                       <C>              <C>
Construction/rehabilitation
  properties                                   17   $     148,812             5.81%            5.76%
Lease up properties                             2          20,880             6.40%            6.40%
Additional funding of existing
  bonds                                        --           3,541             5.60%            5.60%
                                    -------------   -------------    -------------    -------------

  Total                                        19   $     173,233             5.87%            5.83%
                                    =============   =============    =============    =============
</TABLE>

(1)  Number of additional  funding of existing bonds disregarded as not additive
     to total number of bonds in the portfolio.
(2)  Principal amount at issuance.

                                       10
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


The table  presented  below  summarizes  mortgage  revenue  bonds repaid in full
during the nine months ended September 30, 2007:
<TABLE>
<CAPTION>
                                      Number of        Carrying                         Realized
(DOLLARS IN THOUSANDS)                  Bonds           Amount          Proceeds       Gain/(Loss)
---------------------------------   -------------   -------------    -------------    -------------
<S>                                             <C> <C>              <C>              <C>

Non-participating, stabilized                   1   $       7,798    $       8,099    $         301
Non-participating, not stabilized               3           2,627            2,622               (5)
                                    -------------   -------------    -------------    -------------

  Total                                         4   $      10,425    $      10,721    $         296
                                    =============   =============    =============    =============
</TABLE>


The proceeds detailed above do not include normal amortization payments of $15.5
million.

C. SECURITIZED OR PLEDGED ASSETS

At September 30, 2007,  281 mortgage  revenue bonds with an aggregate fair value
of $2.4  billion  were  securitized  or pledged as  collateral  in  relation  to
financing  arrangements.  Of these, 44 bonds with a fair value of $395.6 million
are eliminated in consolidation.

D. IMPAIRMENT

During 2007, we recognized  $19.9  million of mortgage  revenue bond  impairment
charges,  of which $0.5 million was  recognized in the third quarter of 2007. Of
this amount, $13.7 million,  recognized in the first quarter of 2007, is related
to the change in our strategy in recovering investments associated with troubled
developers (see discussion under PRS/CRG/ERC in Note 18). The change in strategy
involved a change in the length of time we plan to hold the  investments  or the
amount of funding we will provide to support the underlying  property.  As such,
the  estimated  level and  timing  of cash  flows  used to value the  properties
reduced the estimated fair values of the associated mortgage revenue bonds.

The other  impairments  resulted from substandard  performance at the underlying
properties.  For one property, there is a full interest forbearance in place and
re-issuance of the bond is expected to occur later in the year.


NOTE 3 - OTHER INVESTMENTS

Investments other than mortgage revenue bonds consisted of:
<TABLE>
<CAPTION>
                                           September 30,    December 31,
(IN THOUSANDS)                                  2007            2006
----------------------------------------   -------------   -------------
<S>                                        <C>             <C>
Equity method
-------------
  Equity interests in LIHTC properties     $      56,126   $      40,546
Available-for-sale
------------------
  Resecuritization certificates                   87,360         102,357
  Marketable securities                           32,499           1,465
Other
-----
  Mortgage loans held for sale                    63,905         122,459
  Mortgage loans held for investment              40,193          46,477
  Construction loans to LIHTC properties          21,399          12,946
  Miscellaneous investments                        6,702           9,604
                                           -------------   -------------

    Total other investments                $     308,184   $     335,854
                                           =============   =============
</TABLE>


A. EQUITY INTERESTS IN LIHTC PROPERTIES

Through a  subsidiary,  we acquire  equity  interests in entities that own LIHTC
properties  on a short-term  basis for  inclusion in future  Affordable  Housing
investment fund offerings.  We expect to recapture our costs in such investments
from the proceeds when the investment fund has closed.

                                       11
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


B. RESECURITIZATION CERTIFICATES

Resecuritization certificates pertain to our retained investments in trusts that
hold CMBS investments  sponsored directly, or indirectly through other funds, of
Investors. The resecuritization certificates (not including certificates held at
the fund  level  detailed  in Note 15) were  comprised  of the  following  as of
September 30, 2007:
<TABLE>
<CAPTION>
                              Face         Accreted       Unrealized      Unrealized          Fair        Percentage of
(DOLLARS IN THOUSANDS)       Amount          Cost            Gain            Loss             Value        Fair Value
----------------------   -------------   -------------   -------------   -------------    -------------   -------------
<S>                      <C>             <C>             <C>             <C>              <C>                     <C>
Security rating:
  AAA interest only       $         --   $      13,663   $       2,218    $         --    $      15,881            18.2%
  AAA                           26,150          14,188           9,574              --           23,762            27.2
  BBB+                          12,536           5,233           2,860              --            8,093             9.3
  BBB                            9,402           3,567           1,976              --            5,543             6.3
  BBB-                           9,402           2,549           2,716              --            5,265             6.0
  BB+                           24,454           7,809           4,071          (1,311)          10,569            12.1
  BB                             8,501           1,907           1,459            (279)           3,087             3.5
  BB-                           11,635           1,923           2,022            (227)           3,718             4.3
  B+                            13,273           2,158             682            (476)           2,364             2.7
  B                             11,486           1,055             726             (81)           1,700             1.9
  B-                            11,635             879             731             (42)           1,568             1.8
  Non-rated                    131,397           2,624           2,613              --            5,237             6.0
  Non-rated interest
  only                              --             408             165              --              573             0.7
                         -------------   -------------   -------------   -------------    -------------   -------------

  Total                  $     269,871   $      57,963   $      31,813   $      (2,416)   $      87,360           100.0%
                         =============   =============   =============   =============    =============   =============
</TABLE>


At September 30, 2007, the AAA interest only  certificate  had a notional amount
of $539.5 million and the non-rated  interest only  certificates  had a combined
notional amount of $197.4 million.

C. MARKETABLE SECURITIES

Marketable  securities at September 30, 2007,  primarily represents a Fannie Mae
discounted  note accounted for under the provisions of SFAS No. 115,  ACCOUNTING
FOR CERTAIN  INVESTMENTS IN DEBT AND EQUITY SECURITIES,  that matured in October
2007 and was repaid at par.

D. MORTGAGE LOANS HELD FOR SALE

Mortgage  loans  held  for  sale  include  originated  loans  typically  sold to
government  sponsored entities,  such as Fannie Mae, Freddie Mac and GNMA within
three months of origination.

E. CONSTRUCTION LOANS TO LIHTC PROPERTIES

Through a  subsidiary,  we issue  construction  loans to LIHTC  properties  on a
short-term basis until the properties are included in future Affordable  Housing
investment fund  offerings.  These loans are guaranteed by the developers of the
LIHTC properties.


NOTE 4 - GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill and intangible assets, net are presented in the table below:
<TABLE>
<CAPTION>
                                 September 30,    December 31,
(IN THOUSANDS)                        2007            2006
------------------------------   -------------   -------------
<S>                              <C>             <C>
Goodwill                         $     344,550   $     345,806
Other intangible assets, net           114,562         126,459
Mortgage servicing rights, net          57,901          68,785
                                 -------------   -------------

  Total                          $     517,013   $     541,050
                                 =============   =============
</TABLE>

                                       12
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


A. GOODWILL

The table provided below summarizes  information  regarding  goodwill,  which we
include in our Corporate group:
<TABLE>
<CAPTION>
          (IN THOUSANDS)                      Total
          -----------------------------   -------------
          <S>                             <C>
          Balance at December 31, 2006    $     345,806
          Additions                                 432
          Reductions                             (1,688)
                                          -------------

          Balance at September 30, 2007   $     344,550
                                          =============
</TABLE>


The goodwill  addition was due to adoption of FIN 48 (see Note 10) and a reserve
for an uncertain tax position that existed at Investors at acquisition.

Reductions to goodwill pertain primarily to the redemption of SCUs (see Note 9).
The  deferred  tax impact of such  redemption  effectively  reduces the purchase
price of the subsidiary of which they were issued to finance.  Other  reductions
relate to the final allocations of our purchase price of Investors.

B. OTHER INTANGIBLE ASSETS, NET

The  components  of other  intangible  assets,  net are  summarized in the table
below:
<TABLE>
<CAPTION>
                             Estimated
                              Useful
                               Life                   Gross                     Accumulated
(DOLLARS IN THOUSANDS)      (in Years)            Carrying Amount               Amortization                       Net
-------------------------   ------------   ---------------------------   ---------------------------   ---------------------------
                                           September 30,  December 31,   September 30,  December 31,   September 30,  December 31,
                                               2007           2006           2007           2006           2007           2006
                                           ------------   ------------   ------------   ------------   ------------   ------------
<S>                                 <C>    <C>            <C>            <C>            <C>            <C>            <C>
Amortized intangible
  assets:
  Transactional
   relationships                    16.7   $    103,000   $    103,000   $     31,911   $     25,590   $     71,089   $     77,410
  Partnership service
   contracts                         9.4         47,300         47,300         20,396         16,604         26,904         30,696
  General partner
   interests                         8.5          6,016          6,016          2,318          1,774          3,698          4,242
  Joint venture developer
   relationships                     5.0          4,800          4,800          3,635          2,915          1,165          1,885
  Mortgage banking broker
   relationships                     5.0          1,080          1,080            558            396            522            684
  Other identified
   intangibles (1)                   9.3          1,319          4,427            908          3,658            411            769
                            ------------   ------------   ------------   ------------   ------------   ------------   ------------
Weighted average
  life/subtotal                     13.8        163,515        166,623         59,726         50,937        103,789        115,686
                            ============

Unamortized intangible
  assets:
  Mortgage banking
   licenses and approvals
   with no expiration                            10,773         10,773             --             --         10,773         10,773
                                           ------------   ------------   ------------   ------------   ------------   ------------

Total other intangible
  assets, net                              $    174,288   $    177,396   $     59,726   $     50,937   $    114,562   $    126,459
                                           ============   ============   ============   ============   ============   ============
</TABLE>

<TABLE>
<CAPTION>
                                                                              Three Months Ended             Nine Months Ended
(IN THOUSANDS)                                                                   September 30,                 September 30,
---------------------------                                              ---------------------------   ---------------------------
                                                                             2007           2006           2007           2006
                                                                         ------------   ------------   ------------   ------------
<S>                                                                      <C>            <C>            <C>            <C>
Amortization expense (1)                                                 $      3,889   $      3,769   $     11,819   $     11,746
                                                                         ============   ============   ============   ============
</TABLE>

(1)  Other identified intangibles pertain to the acquisition of mortgage revenue
     bond  investments,  for  which the  amortization  ($0.5  million  per year)
     reduces mortgage revenue bond interest income.

                                       13
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


NOTE 5 - DEFERRED COSTS AND OTHER ASSETS, NET

The  components  of deferred  costs and other  assets,  net are presented in the
table below:
<TABLE>
<CAPTION>
                                                      September 30,    December 31,
(IN THOUSANDS)                                            2007             2006
--------------------------------------------------    -------------    -------------
<S>                                                   <C>              <C>
Deferred financing and other costs                    $      32,604    $      32,472
Less: Accumulated amortization                               (7,256)          (6,718)
                                                      -------------    -------------

Net deferred costs                                           25,348           25,754

Real estate owned, net of accumulated depreciation
   of $1.9 million in 2007 and $1.3 million in 2006          41,887           41,743
Interest receivable                                          19,910           24,926
Fees receivable, net of reserves                             14,365           19,456
Deposits receivable                                          17,522           18,863
Furniture, fixtures and leasehold improvements, net           8,522            8,502
Income taxes receivable                                      10,840              714
Interest rate swaps at fair value                               506            2,236
Other                                                         8,012            7,395
                                                      -------------    -------------

  Total                                               $     146,912    $     149,589
                                                      =============    =============
</TABLE>


NOTE 6 - FINANCING ARRANGEMENTS AND NOTES PAYABLE

The components of financing  arrangements and notes payable are presented in the
table below:
<TABLE>
<CAPTION>
                                                      September 30,    December 31,
(IN THOUSANDS)                                            2007             2006
--------------------------------------------------    -------------    -------------
<S>                                                   <C>              <C>
P-FLOATs/RITES                                        $     580,155    $     403,381
Floats/Residuals (formerly known as TIC/TOC)                869,740          944,799
Fixed-Rate Securitization                                   450,925          452,990
                                                      -------------    -------------
  Total Financing Arrangements                            1,900,820        1,801,170
                                                      -------------    -------------

Term Loan                                                   247,500          249,375
Revolving Credit Facility                                   269,000          177,500
CMC Warehouse Line                                           63,905          122,459
Commercial Real Estate Repurchase Lines                      60,310           41,598
Other                                                           233              233
                                                      -------------    -------------
  Total Notes Payable                                       640,948          591,165
                                                      -------------    -------------

  Total                                               $   2,541,768    $   2,392,335
                                                      =============    =============
</TABLE>


Fluctuations  in our  borrowing  levels  correspond  to the level of  investment
activity in a given period.

A. TERM LOAN AND REVOLVING CREDIT FACILITY

In June 2007, we exercised an accordion  option in our revolving credit facility
to increase the borrowing capacity from $250.0 million to $375.0 million.  As of
September  30,  2007,  we  had  commitments   from  revolving   credit  facility
participants  for $320.0  million of the $375.0  million.  The weighted  average
interest rate as of September  30, 2007 for the term loan and  revolving  credit
facility was 7.30% (including the impact of an interest rate swap).

                                       14
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


B. CMC WAREHOUSE LINE

In May 2007, we closed a warehouse  facility  with  Citicorp USA, Inc.  ("Citi")
which  replaced  the $100.0  million Bank of America,  N.A.  ("Bank of America")
warehouse  facility used by Centerline  Mortgage Capital Inc. ("CMC"),  formerly
known as  CharterMac  Mortgage  Capital.  The facility  had a total  capacity of
$250.0 million as of September 30, 2007,  matures in May 2008 and bears interest
at London  Interbank  Offered Rate  ("LIBOR") plus 0.5%.  Mortgages  financed by
advances  from this  facility as well as the related  servicing and other rights
(see Notes 3 and 4) are pledged as security under the facility.  Borrowing under
the CMC warehouse  line relates to the level of  origination  activity (see also
Note 3). As of September 30, 2007, the interest rate was 6.17%.

C. MULTIFAMILY ASAP PLUS FACILITY

Under this program with Fannie Mae,  mortgage  loans are initially  funded using
the  CMC  warehouse  line  described  above.  Subsequently,   Fannie  Mae  funds
approximately  99% of the loan and CMC  funds  the  remaining  1%.  CMC is later
reimbursed  by Fannie Mae. As of September 30, 2007,  there were no  outstanding
advances from this facility.


NOTE 7 - DERIVATIVE INSTRUMENTS

A. CASH FLOW HEDGES OF DEBT

Certain of our financing  arrangements  and notes payable incur interest expense
at variable  rates,  exposing us to interest  rate risk.  We have  established a
policy for risk  management  and our  objectives  and  strategies for the use of
derivative  instruments to potentially mitigate such risk. We currently manage a
portion of our interest rate risk  resulting from the exposure to variable rates
(benchmark  rate) on our financing  agreements and notes payable through the use
of interest rate swaps indexed to the Securities  Industry and Financial Markets
Association Municipal Swap Index ("SIFMA") rate, the most widely used tax-exempt
floating rate index,  or to LIBOR.  Under each swap  agreement,  for a specified
period of time we are  required  to pay a fixed rate of  interest on a specified
notional amount to the transaction  counterparty  and we receive a floating rate
of interest equivalent to the SIFMA or LIBOR index.

At inception,  we designate these swaps as cash flow hedging  instruments,  with
the hedged item being the variable  interest payments on our floating rate debt.
At the  inception of the hedge and on an ongoing  basis,  we assess  whether the
swap  agreements  are effective in  offsetting  changes in the cash flows of the
hedged  financing.   Amounts  in  accumulated  other  comprehensive  income  are
reclassified into earnings in the same period during which the hedged forecasted
transaction  affects  earnings.  Since  we are  hedging  the  variable  interest
payments in our floating rate debt, the forecasted transactions are the interest
payments.  An inherent risk of these swap  agreements is the credit risk related
to the  counterparty's  ability to meet  terms of the  contracts  with us.  Swap
agreements  existing as of September 30, 2007 had combined  notional  amounts of
$725.0 million,  expire in periods from December 2007 through January 2010 and a
weighted average rate of 3.85%.

We evaluate our interest rate risk on an ongoing  basis to determine  whether it
would be advantageous to engage in any further hedging transactions.

We estimate that $0.1 million of the net unrealized gain included in accumulated
other  comprehensive  income will reduce interest expense within the next twelve
months.

Certain of our consolidated  partnerships also had interest rate swaps accounted
for as hedges as of September 30, 2007 (see Note 15).

B. FREE STANDING DERIVATIVES

In 2006,  we had an interest  rate swap with a notional  amount of $26.0 million
that hedged the change in fair value of a $26.0  million  investment.  This swap
was assigned to AMAC when we sold AMAC the related  investment in 2006. Prior to
its  assignment,  we did not elect to apply hedge  accounting  to this swap and,
accordingly,  the change in its fair value was  included in interest  expense as
detailed below.

One of our  businesses  within our Commercial  Real Estate segment  entered into
three interest rate swap  agreements in connection  with a CMBS fund that closed
in the third quarter of 2007 (see Note 15). We did not apply hedge accounting to
these swap agreements and,  accordingly,  changes in the fair value of the swaps
are included in interest expense as detailed below.

                                       15
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


C. FINANCIAL STATEMENT IMPACT

Presented  below are  amounts  included  in  Interest  expense on the  Condensed
Consolidated Statements of Income related to the swaps described above:
<TABLE>
<CAPTION>
                                                       Three Months Ended          Nine Months Ended
                                                          September 30,               September 30,
                                                    ------------------------   -------------------------
(IN THOUSANDS)                                         2007          2006          2007          2006
-------------------------------------------------   ----------    ----------    ----------    ----------
 <S>                                                <C>           <C>           <C>           <C>
Interest payments - cash flow hedges                $       (1)   $       --    $       --    $      (35)
Interest receipts - cash flow hedges                       938           727         2,516         1,476
Change in fair value of free standing derivatives       (6,948)         (405)       (6,057)         (202)
Ineffectiveness                                           (514)         (200)         (911)         (599)
                                                    ----------    ----------    ----------    ----------

Interest expense                                    $   (6,525)   $      122    $   (4,452)   $      640
                                                    ==========    ==========    ==========    ==========
</TABLE>


Interest  rate  swaps  in a net  liability  position  ("out of the  money")  are
recorded in accounts  payable,  accrued expenses and other liabilities and those
in a net asset  position  ("in the  money") are  recorded in deferred  costs and
other assets. The amounts recorded were as follows:
<TABLE>
<CAPTION>
                                                  September 30,    December 31,
(IN THOUSANDS)                                         2007            2006
-----------------------------------------------   -------------   -------------
<S>                                               <C>             <C>
Net liability position                            $      18,417   $       1,997
Net asset position                                $         506   $       2,236
</TABLE>


NOTE 8 - ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES

Accounts  payable,  accrued  expenses  and other  liabilities  consisted  of the
following:
<TABLE>
<CAPTION>
                                                  September 30,    December 31,
(IN THOUSANDS)                                         2007            2006
-----------------------------------------------   -------------   -------------
<S>                                               <C>             <C>
Deferred revenues                                 $      99,195   $      92,564
Distributions payable                                    41,071          41,554
Accounts payable                                         12,175          15,005
Salaries and benefits                                    31,400          29,551
Accrued fund organization and offering expenses          11,724          11,860
Escrow/deposits payable                                   5,155           6,844
Accrued interest payable                                 10,423           9,446
Interest rate swaps at fair value (Note 7)               18,417           1,997
Restructuring accrual                                        86           1,128
Income tax reserves (Note 10)                             2,344              --
Other                                                     4,100           4,395
                                                  -------------   -------------

  Total                                           $     236,090   $     214,344
                                                  =============   =============
</TABLE>

                                       16
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


The restructuring accrual pertains to integration activities with respect to the
acquisition of Investors.  We recorded these costs in general and administrative
expenses  in the second  quarter of 2006.  A roll  forward of the  restructuring
costs (included within our Asset Management and Commercial Real Estate segments)
is presented in the table below:
<TABLE>
<CAPTION>
                                   Employee          Lease
                                 termination      termination
(IN THOUSANDS)                      costs            costs            Total
-----------------------------   -------------    -------------    -------------
<S>                             <C>              <C>              <C>
Balance at January 1, 2007      $         964    $         164    $       1,128
Additions                                 165               --              165
Payments                               (1,129)             (78)          (1,207)
                                -------------    -------------    -------------

Balance at September 30, 2007   $          --    $          86    $          86
                                =============    =============    =============
</TABLE>


The restructuring  with respect to employee  terminations was completed in April
2007.  The accrual for lease  termination  costs will be paid over the remaining
term of the lease (2.8 years).


NOTE 9 - MINORITY INTERESTS IN SUBSIDIARIES, NET OF TAX

Minority  interests in  subsidiaries,  net of tax consisted of the amounts noted
below:
<TABLE>
<CAPTION>
                                                            September 30,   December 31,
(IN THOUSANDS)                                                   2007            2006
---------------------------------------------------------   -------------   -------------
<S>                                                         <C>             <C>
Convertible Special Common Units ("SCUs") of a subsidiary   $     204,333   $     231,262
Convertible Special Membership Units ("SMUs") of a
   subsidiary                                                       4,798           5,110
Convertible Special Common Interests ("SCIs") of a
   subsidiary                                                       4,418           4,758
Other minority interests                                            6,647           6,260
                                                            -------------   -------------

  Total                                                     $     220,196   $     247,390
                                                            =============   =============
</TABLE>


Income (loss) allocated to minority  interests in  subsidiaries,  net of tax, is
provided in the table below:
<TABLE>
<CAPTION>
                              Three Months Ended             Nine Months Ended
                                  September 30,                September 30,
                           -------------------------    -------------------------
(IN THOUSANDS)                 2007         2006            2007          2006
------------------------   -----------   -----------    -----------   -----------
<S>                        <C>           <C>            <C>           <C>
SCUs                       $     4,398   $     5,725    $       371   $    13,085
SMUs                                60           118              7           288
SCIs                                57            29              6            29
Other minority interests           792          (101)           514          (101)
                           -----------   -----------    -----------   -----------

  Total                    $     5,307   $     5,771    $       898   $    13,301
                           ===========   ===========    ===========   ===========
</TABLE>


A. SCUS

During 2007,  the holder of 132,000 SCUs  redeemed the units,  for which we paid
$2.8  million in cash  based upon the market  price of our shares at the time of
redemption.  We also redeemed the special preferred voting shares related to the
converted SCUs at par ($0.01 per share).

                                       17
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


B. OTHER

Other  minority  interests at September  30, 2007,  primarily  represent the 10%
interest  in  Centerline  Financial  Holdings  LLC  ("CFH"),  formerly  known as
Centerbrook  Holdings LLC,  owned by Natixis  Capital  Markets Inc.  ("Natixis")
(formerly IXIS Capital Markets North America, Inc.).


NOTE 10 - INCOME TAXES

We adopted the provisions of FIN 48 on January 1, 2007. As a result of adoption,
we  recognized  a charge of $1.2  million to the  January  1,  2007,  balance of
beneficial  owners'  equity and $0.4  million to the  January 1, 2007,  goodwill
balance (see Note 4). As of the adoption  date,  we had gross  unrecognized  tax
benefits of $2.0 million and accrued  interest of $0.8  million.  Of this total,
$2.5  million  represents  the amount of  unrecognized  tax  benefits  that,  if
recognized,  would  favorably  affect  the  effective  income tax rate in future
periods.  We do  not  anticipate  that  these  unrecognized  tax  benefits  will
significantly  change  due to the  settlement  of audits and the  expiration  of
statute  of  limitations  prior to June 30,  2008.  We  recognize  interest  and
penalties  related to uncertain tax positions within our income tax provision or
benefit.

The Internal  Revenue Service is examining the  consolidated  corporate  federal
income tax  returns  of our  subsidiaries  subject to taxes for the tax  periods
ended June 30, 2003,  December 31, 2003 and December 31, 2004. The New York City
taxing  authority  is  examining  the  partnership  tax  returns  of  one of our
subsidiaries for the years ended December 31, 2003 and 2004. These  examinations
are ongoing and no significant issues have yet been raised.


NOTE 11 - COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss), net of tax as applicable, is presented in the table
below:
<TABLE>
<CAPTION>
                                                                  Nine Months Ended
                                                                    September 30,
                                                              ------------------------
(IN THOUSANDS)                                                   2007          2006
-----------------------------------------------------------   ----------    ----------
<S>                                                           <C>           <C>
Net income                                                    $      877    $   33,476
Net unrealized (loss) gain on interest rate derivatives          (10,616)          579
Net unrealized (loss) gain on available-for-sale securities      (10,728)        1,139
Other comprehensive income of equity investees                   (38,454)        1,374
Net unrealized gain (loss) on mortgage revenue bonds:
   Unrealized gain (loss) during the period                       20,086           (29)
   Reclassification adjustment for net gain included in net
   income                                                         18,979        (1,366)
                                                              ----------    ----------

Comprehensive (loss) income, net of tax                       $  (19,856)   $   35,173
                                                              ==========    ==========
</TABLE>


NOTE 12 - GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses consisted of the following:
<TABLE>
<CAPTION>
                                       Three Months Ended          Nine Months Ended
                                          September 30,               September 30,
                                   -------------------------   -------------------------
(IN THOUSANDS)                         2007          2006          2007          2006
--------------------------------   -----------   -----------   -----------   -----------
<S>                                <C>           <C>           <C>           <C>
Salaries and benefits              $    27,572   $    26,821   $    91,460   $    64,782
Other general and administrative        16,720        16,858        53,196        51,323
                                   -----------   -----------   -----------   -----------

  Total                            $    44,292   $    43,679   $   144,656   $   116,105
                                   ===========   ===========   ===========   ===========
</TABLE>

                                       18
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


NOTE 13 - EARNINGS PER SHARE

For basic  Earnings  Per Share  ("EPS"),  the number of shares  includes  common
shares and Convertible Community Reinvestment Act Preferred Shares ("Convertible
CRA Shares"),  as the Convertible CRA Shares have the same economic  benefits as
common  shares.  Income for the  calculation  represents net income or loss less
dividends for our 4.4% Convertible CRA Preferred Shares.

Diluted  EPS  is  calculated   using  the  weighted  average  number  of  shares
outstanding  during the period  plus the  additional  dilutive  effect of common
share  equivalents.  The  dilutive  effect  of  outstanding  share  options  and
non-vested share grants is calculated using the treasury stock method.  The 4.4%
Convertible CRA Preferred Shares and our subsidiaries'  convertible equity units
are not  included  in the  calculation  as their  assumed  conversions  would be
antidilutive.  In accordance with SFAS No. 128,  EARNINGS PER Share, 1.0 million
common share  equivalents  have been excluded in the Diluted EPS calculation for
the nine  months  ended  September  30,  2007 as we  reported  a net loss  after
dividends for the 4.4% Convertible CRA Preferred Shares.
<TABLE>
<CAPTION>
                                                         Three Months Ended                          Nine Months Ended
                                                         September 30, 2007                          September 30, 2007
                                              -----------------------------------------   ----------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)         Income        Shares        Per Share       Income        Shares    Per Share
-------------------------------------------   -----------    -----------    -----------   -----------    -----------   -----------
<S>                                           <C>                 <C>       <C>           <C>                 <C>      <C>
Net income                                    $    10,642                                 $       877
Preferred dividends                                (1,188)                                     (3,564)
                                              -----------                                 -----------
Net income (loss) available to shareholders
  (Basic EPS)                                       9,454         56,582    $      0.17        (2,687)        57,248   $     (0.05)
                                                                            ===========                                ===========
Effect of dilutive securities                          --            681                           --             --
                                              -----------    -----------                  -----------    -----------
Diluted EPS                                   $     9,454         57,263    $      0.17   $    (2,687)        57,248   $     (0.05)
                                              ===========    ===========    ===========   ===========    ===========   ===========
</TABLE>

<TABLE>
<CAPTION>
                                                         Three Months Ended                          Nine Months Ended
                                                         September 30, 2006                          September 30, 2006
                                              -----------------------------------------   ----------------------------------------
                                                 Income        Shares        Per Share       Income        Shares    Per Share
                                              -----------    -----------    -----------   -----------    -----------   -----------
<S>                                           <C>                 <C>       <C>           <C>                 <C>      <C>
Net income                                    $    14,571                                 $    33,476
Preferred dividends                                (1,188)                                     (3,564)
                                              -----------                                 -----------
Net income available to shareholders (Basic
  EPS)                                             13,383         58,015    $      0.23        29,912         58,409   $      0.51
                                                                            ===========                                ===========
Effect of dilutive securities                          --            381                           --            421
                                              -----------    -----------                  -----------    -----------
Diluted EPS                                   $    13,383         58,396    $      0.23   $    29,912         58,830   $      0.51
                                              ===========    ===========    ===========   ===========    ===========   ===========
</TABLE>


NOTE 14 - SHARE BASED COMPENSATION

A. THE PLAN

In June 2007,  our  shareholders  approved  the 2007  Incentive  Share Plan (the
"Plan"),  which replaced our then existing Amended and Restated  Incentive Share
Plan.

The purpose of the Plan is designed to  attract,  retain and  motivate  eligible
persons and to provide incentives and rewards for superior performance.

The Plan allows for the issuance of share options,  share  appreciation  rights,
restricted shares,  restricted share units,  unrestricted shares, deferred share
units, and performance awards (collectively, the "Awards") to eligible persons.

The  Compensation   Committee  (the   "Committee")  of  our  Board  of  Trustees
administers the Plan.  Pursuant to the Plan, the maximum number of common shares
that may be awarded is the lesser of:

     o    10% of the number of total shares outstanding (as defined in the Plan)
          as of December 31 preceding issuances of such awards; or

     o    the limits  prescribed by the national  security  exchange or national
          quotation system on which the shares may then be listed.

Based on this  formula,  the  total  number  of  Awards  available  for grant is
approximately  7.5 million  shares.  Grants  under the Plan  totaled 0.4 million
shares through September 30, 2007.

                                       19
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


The  Committee  will grant Awards under the Plan at its  discretion,  and it has
established  the  2007  Outperformance  Program  ("2007  OPP"),  and two  Annual
Incentive  Bonus Programs  (denominated  as "A" and "B") that provide for future
Awards  on  terms  the  Committee  has  established.  At this  time,  we can not
determine the amount or dollar value of Awards to be provided under any of these
programs because they depend on our future  performance,  and because individual
allocations are discretionary for each program.

B. OUTPERFORMANCE PROGRAM

Under the 2007 OPP,  Award  recipients  will share in a performance  pool if our
total return to  shareholders  over the  three-year  period from January 1, 2007
through December 31, 2009 exceeds 37.5%. The size of the pool will be 11% of the
outperformance  return  amount in excess of the 37.5%  benchmark,  subject  to a
maximum  pool  of  $25.0  million.  The  outperformance  pool  will  be  paid to
participants in the form of restricted  share awards which will vest 50% on each
of  December  31,  2010  and  2011,  subject  to  the  participant's   continued
employment,  except as otherwise provided in the 2007 OPP. We are accounting for
OPP Awards as equity awards pursuant to SFAS No. 123 (R), SHARE BASED PAYMENT.

C.  ANNUAL INCENTIVE BONUS PROGRAMS

The Annual  Incentive Bonus Programs  establish cash bonus pools for the payment
of annual bonuses of cash and restricted shares to eligible  persons.  Under the
programs,  we expect to issue  awards equal to 4.07% of our cash  available  for
distribution to shareholders ("CAD"). See Note 16 for a definition of CAD.

D.  RE-ISSUANCE OF STOCK OPTIONS

In July 2007, our Compensation and Nominating and Governance Committees approved
the cancellation of outstanding  options to purchase our common shares issued to
Stephen M. Ross, our Chairman,  and the  substitution  of the cancelled  options
with new ones on substantially similar terms.

The Committees  took this action  because Mr. Ross  otherwise  likely would have
been subject to adverse tax consequences  under Section 409A ("Section 409A") of
the Internal Revenue Code of 1986, as amended,  that were unforeseen at the time
we granted the original options.  The Cancelled Option was issued to Mr. Ross in
consideration  of his  service  as the  Chairman  of the  Board of  Trustees  in
connection  with our  acquisition  of  Related  Capital  Company  (now  known as
Centerline  Affordable  Housing  Advisors  LLC).  The  cancelled  options had an
exercise  price ($17.78 per share) that was below the market value of our common
shares  ("in-the  money")  on  November  17,  2003,  the  effective  date of the
cancelled  options,  because the parties previously had agreed that the exercise
price would equal the average of the closing  price of our common shares for the
30  calendar  days  immediately   preceding  the  public   announcement  of  the
acquisition. For purposes of Section 409A, the holder of a share option that has
been granted "in-the-money",  to the extent not vested as of January 1, 2005, is
subject to adverse tax consequences.

The new  options,  which were  granted  with an exercise  price above the market
price of our common shares on the grant date:

     o    contain the identical  exercise price ($17.78 per common share) as the
          cancelled options;
     o    expire on the same date (November 17, 2013) as the cancelled options;
     o    grant an option to purchase the same number of common shares (800,000)
          that remained unexercised under the cancelled option; and
     o    provide for the same vesting  schedules  with respect to the remaining
          unvested  shares  under the  cancelled  option  (400,000  of which are
          vested  immediately,  200,000 of which are due to vest on November 17,
          2007 and 200,000 of which are due to vest on November 17, 2008).

Because the terms of the cancelled options and the new options are substantially
similar, the cancellation and re-grant had no effect on share-based compensation
expenses reported in our condensed consolidated financial statements.


NOTE 15 - CONSOLIDATED PARTNERSHIPS

Consolidated partnerships consist of four groups:

     o    Funds our Affordable Housing businesses manage to acquire LIHTC equity
          ("LIHTC Fund Partnerships");
     o    Property  level   partnerships   for  which  our  Affordable   Housing
          businesses have assumed the role of general  partner ("LIHTC  Property
          Partnerships");
     o    Funds our  Commercial  Real Estate  businesses  manage which invest in
          CMBS   and    associated    resecuritization    trusts   ("CMBS   Fund
          Partnerships"); and

                                       20
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


o        A fund our  Commercial  Real Estate  business  manages which invests in
         real estate debt products ("Direct Loan Fund Partnership").

Financial  information  for the LIHTC Fund and Property  Partnerships  are as of
June 30, 2007, the latest  practical date.  Information with respect to the CMBS
Fund and Direct Fund Loan Partnerships is as of September 30, 2007.

Assets and liabilities of consolidated partnerships consisted of the following:
<TABLE>
<CAPTION>
                                                       September 30, 2007                         December 31, 2006
                                           ------------------------------------------   ------------------------------------------
                                                            CMBS and                                     CMBS and
                                            LIHTC Fund    Direct Loan                    LIHTC Fund    Direct Loan
                                           and Property       Fund                      and Property      Fund
(IN THOUSANDS)                             Partnerships   Partnerships      Total       Partnerships   Partnerships      Total
----------------------------------------   ------------   ------------   ------------   ------------   ------------   ------------
<S>                                        <C>              <C>          <C>            <C>               <C>         <C>
Investments in property partnerships       $  3,872,742     $       --   $  3,872,742   $  3,546,208      $      --   $  3,546,208
Investments in CMBS - available-for-sale             --      1,400,221      1,400,221             --        719,645        719,645
Investments in resecuritization
  certificates - available-for-sale                  --        622,168        622,168             --        597,491        597,491
Notes receivable                                     --        311,771        311,771             --        101,156        101,156
Other investments                                    --             --             --             --          1,407          1,407
                                           ------------   ------------   ------------   ------------   ------------   ------------
Investments held by consolidated
  partnerships                                3,872,742      2,334,160      6,206,902      3,546,208      1,419,699      4,965,907
                                           ------------   ------------   ------------   ------------   ------------   ------------

Land, buildings and improvements, net           587,370             --        587,370        576,171             --        576,171
Cash                                            253,254         36,728        289,982        277,860         27,213        305,073
Other assets                                    185,960         48,515        234,475        123,890         33,645        157,535
                                           ------------   ------------   ------------   ------------   ------------   ------------
Other assets of consolidated
  partnerships                                1,026,584         85,243      1,111,827        977,921         60,858      1,038,779
                                           ------------   ------------   ------------   ------------   ------------   ------------

  Total assets                             $  4,899,326   $  2,419,403   $  7,318,729   $  4,524,129   $  1,480,557   $  6,004,686
                                           ============   ============   ============   ============   ============   ============

Financing arrangements                       $       --   $  1,128,813   $  1,128,813      $      --   $    709,219   $    709,219
Notes payable                                   407,674         81,144        488,818        594,477             --        594,477
Repurchase agreements                                --        414,961        414,961             --        243,955        243,955
Due to property partnerships                    895,533             --        895,533        925,301             --        925,301
Other liabilities                               225,286         10,816        236,102        215,628         11,574        227,202
                                           ------------   ------------   ------------   ------------   ------------   ------------

  Total liabilities                        $  1,528,493   $  1,635,734   $  3,164,227   $  1,735,406   $    964,748   $  2,700,154
                                           ============   ============   ============   ============   ============   ============
</TABLE>


A. INVESTMENTS IN PROPERTY PARTNERSHIPS AND DUE TO PROPERTY PARTNERSHIPS

The LIHTC Fund Partnerships  invest in property level  partnerships that neither
we nor the LIHTC  Fund  Partnerships  control  and which,  therefore,  we do not
consolidate.  "Investments  in  property  partnerships"  represents  the limited
partner  equity  investments  in  those  property  level  partnerships.  "Due to
property partnerships"  represents the unfunded capital commitments of the LIHTC
Fund  Partnerships  in those property  partnerships.  As those  commitments  are
funded,  the "investments in property  partnerships"  balance  increases and the
"due to property partnerships" balance decreases.

B. INVESTMENTS IN CMBS - AVAILABLE-FOR-SALE

The CMBS Fund Partnerships invest in and hold CMBS investments.  In August 2007,
Investors  closed on an additional  CMBS Fund  Partnership,  consisting of total
accepted capital  commitments of $585.3 million. We participate as a co-investor
in the fund, and have committed  $29.3 million of the total capital  commitments
of this fund. CMBS investments held by these partnerships  comprised the amounts
noted below as of September 30, 2007:

                                       21
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                              Face         Accreted       Unrealized       Unrealized          Fair         Percentage of
(DOLLARS IN THOUSANDS)       Amount          Cost            Gain             Loss             Value         Fair Value
----------------------   -------------   -------------   -------------    -------------    -------------    -------------
<S>                      <C>             <C>              <C>             <C>              <C>                      <C>
Security rating:
  BBB+                   $      17,000   $      17,000    $         --    $      (4,842)   $      12,158              0.9%
  BBB                           64,105          55,062              --           (8,660)          46,402              3.3
  BBB-                         347,032         301,627             532          (37,508)         264,651             18.9
  BB+                          269,706         229,721              --          (27,691)         202,030             14.4
  BB                           242,268         201,538              --          (30,874)         170,664             12.2
  BB-                          288,470         207,966             832          (23,469)         185,329             13.2
  B+                           202,753         138,286             204          (12,502)         125,988              9.0
  B                            159,821          95,191           1,498          (12,929)          83,760              6.0
  B-                           199,830          91,197          10,809          (12,508)          89,498              6.4
  CCC-                           6,000           4,286              --             (469)           3,817              0.3
  Non-rated                    814,602         270,382           3,658          (58,116)         215,924             15.4
                         -------------   -------------   -------------    -------------    -------------    -------------

  Total                  $   2,611,587   $   1,612,256   $      17,533    $    (229,568)   $   1,400,221            100.0%
                         =============   =============   =============    =============    =============    =============
</TABLE>


C. INVESTMENTS IN RESECURITIZATION CERTIFICATES

The CMBS Fund Partnerships retain interests ("resecuritization certificates") in
certain  securitized  assets that they have sold, as well as others purchased in
market transactions.  Investments in resecuritization certificates held by these
partnerships comprised the amounts noted below as of September 30, 2007:
<TABLE>
<CAPTION>
                              Face         Accreted       Unrealized       Unrealized          Fair         Percentage of
(DOLLARS IN THOUSANDS)       Amount          Cost            Gain             Loss             Value         Fair Value
----------------------   -------------   -------------   -------------    -------------    -------------    -------------
<S>                      <C>             <C>              <C>             <C>              <C>                      <C>
Security rating:
  AAA                    $     111,900   $     107,136   $       4,002    $      (1,623)   $     109,515             17.6%
  AA                            66,600          64,497           2,139           (1,116)          65,520             10.5
  A                             47,000          45,315           1,681             (873)          46,123              7.4
  A-                            23,900          24,019             505             (885)          23,639              3.8
  BBB+                         101,338          96,798           2,039           (7,550)          91,287             14.7
  BBB                           55,381          50,727             872           (6,313)          45,286              7.3
  BBB-                         136,264         128,500           3,059          (15,267)         116,292             18.7
  BB+                           68,363          42,997           1,374           (4,631)          39,740              6.4
  BB                            20,075          12,995             415           (1,724)          11,686              1.9
  BB-                           17,293           9,715             496           (1,261)           8,950              1.4
  B+                            28,349          14,322             238           (1,963)          12,597              2.0
  B                             11,347           2,698             580              (78)           3,200              0.5
  B-                            23,713          13,726             594           (3,122)          11,198              1.8
  Non-rated                    204,973          36,974           7,031          (10,135)          33,870              5.5
  Non-rated interest
  only                              --           4,779             857           (2,371)           3,265              0.5
                         -------------   -------------   -------------    -------------    -------------    -------------
  Total
                         $     916,496   $     655,198   $      25,882    $     (58,912)   $     622,168            100.0%
                         =============   =============   =============    =============    =============    =============
</TABLE>


At September 30, 2007, the non-rated  interest only  certificates had a combined
notional amount of $1.4 billion.

D. NOTES RECEIVABLE

The  Direct  Loan Fund  Partnership  invests  in  various  types of  loans.  The
aggregate  carrying  values,  allocated  by product  type and  weighted  average
coupons,  of notes  receivable  held by the Direct Loan Fund  Partnership  as of
September 30, 2007 are presented in the table below:

                                       22
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)
<TABLE>
<CAPTION>
                                           Total        Carrying      Allocation by     Fixed Rate      Variable Rate
(DOLLARS IN THOUSANDS)                  Commitment        Value       Product Type     Average Yield    Average Yield
-----------------------------------   -------------   -------------   -------------    -------------    -------------
<S>                                   <C>             <C>                     <C>               <C>              <C>
Product Type:
  Bridge loans, variable rate         $      15,000   $       9,794             3.1%              --%             8.25%
  Bridge loans, fixed rate                   38,776          37,905            12.2             7.06               --
  Subordinated notes, variable rate          21,525          20,867             6.7               --             7.92
  Subordinated notes, fixed rate             27,985          25,242             8.1             7.93               --
  Mezzanine loans, variable rate            173,767         139,545            44.8               --              9.21
  Mezzanine loans, fixed rate                90,474          78,418            25.1             9.79               --
                                      -------------   -------------   -------------    -------------    -------------

Total/Average                         $     367,527   $     311,771           100.0%            8.26%            8.46%
                                      =============   =============   =============    =============    =============
</TABLE>


E. FINANCING ARRANGEMENTS/ NOTES PAYABLE/ REPURCHASE AGREEMENTS

The funds utilize these debt facilities to finance investment activity.  Changes
in the balances since December 31, 2006, are due to  transactions  undertaken in
the ordinary course of business.

In August 2007, two of our CMBS Fund Partnerships  resecuritized  $986.0 million
in face amount of CMBS certificates, having a fair value of $593.6 million, into
a  collateralized  debt  obligation  offering and issued $453.0  million in face
amount of notes with fixed rate  coupons with a weighted  average of 6.12%.  The
proceeds  were  utilized to repay  $295.5  million of variable  rate  repurchase
agreements   and  the  balance  will  be  returned  to  the   investors  in  the
partnerships.

F. REVENUES AND EXPENSES

Revenues and expenses of consolidated partnerships consisted of the following:
<TABLE>
<CAPTION>
                                                                    Three Months Ended September 30,
                                      ---------------------------------------------------------------------------------------------
                                                          2007                                           2006
                                      ---------------------------------------------   ---------------------------------------------
                                                       CMBS and                                         CMBS and
                                       LIHTC Fund     Direct Loan                      LIHTC Fund     Direct Loan
                                      and Property        Fund                        and Property        Fund
(IN THOUSANDS)                        Partnerships    Partnerships        Total       Partnerships    Partnerships        Total
-----------------------------------   -------------   -------------   -------------   -------------   -------------   -------------
<S>                                   <C>             <C>             <C>             <C>             <C>             <C>
Rental income                         $      15,969   $          --   $      15,969   $       7,137   $          --   $       7,137
Fee income                                       --           5,632           5,632              --           5,200           5,200
Interest and other income                     3,152          50,539          53,691           2,398          10,002          12,400
                                      -------------   -------------   -------------   -------------   -------------   -------------

Total revenues                        $      19,121   $      56,171   $      75,292   $       9,535   $      15,202   $      24,737
                                      =============   =============   =============   =============   =============   =============

Interest expense                      $       3,501   $      22,271   $      25,772   $       6,199   $       7,182   $      13,381

Asset management fees                         5,877              --           5,877           5,079              --           5,079
Property operating expenses                   5,499              --           5,499           3,998              --           3,998
General and administrative expenses           4,754             658           5,412           2,888             115           3,003
Depreciation and amortization                 8,421           1,096           9,517           5,817              60           5,877
Other expenses                                  301              --             301             562              --             562
                                      -------------   -------------   -------------   -------------   -------------   -------------
  Subtotal                                   24,852           1,754          26,606          18,344             175          18,519
                                      -------------   -------------   -------------   -------------   -------------   -------------

Total expenses                        $      28,353   $      24,025   $      52,378   $      24,543   $       7,357   $      31,900
                                      =============   =============   =============   =============   =============   =============
</TABLE>

                                       23
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)
<TABLE>
<CAPTION>
                                                                    Nine Months Ended September 30,
                                      ---------------------------------------------------------------------------------------------
                                                          2007                                           2006
                                      ---------------------------------------------   ---------------------------------------------
                                                       CMBS and                                         CMBS and
                                       LIHTC Fund     Direct Loan                      LIHTC Fund     Direct Loan
                                      and Property        Fund                        and Property        Fund
(IN THOUSANDS)                        Partnerships    Partnerships        Total       Partnerships    Partnerships        Total
-----------------------------------   -------------   -------------   -------------   -------------   -------------   -------------
<S>                                   <C>             <C>             <C>             <C>             <C>             <C>
Rental income                         $      41,397     $        --   $      41,397   $      20,801      $       --   $      20,801
Fee income                                       --           6,078           6,078              --           5,200           5,200
Interest and other income                    10,978         123,478         134,456           6,345          10,002          16,347
                                      -------------   -------------   -------------   -------------   -------------   -------------

Total revenues                        $      52,375   $     129,556   $     181,931   $      27,146   $      15,202   $      42,348
                                      =============   =============   =============   =============   =============   =============

Interest expense                      $      15,949   $      56,137   $      72,086   $      18,756   $       7,182   $      25,938

Asset management fees                        18,480              --          18,480          15,604              --          15,604
Property operating expenses                  16,993              --          16,993          11,286              --          11,286
General and administrative expenses          14,698           1,686          16,384           9,033             115           9,148
Depreciation and amortization                22,074           2,301          24,375          12,445              60          12,505
Other expenses                                3,336              --           3,336           1,515              --           1,515
                                      -------------   -------------   -------------   -------------   -------------   -------------
  Subtotal                                   75,581           3,987          79,568          49,883             175          50,058
                                      -------------   -------------   -------------   -------------   -------------   -------------

Total expenses                        $      91,530   $      60,124   $     151,654   $      68,639   $       7,357   $      75,996
                                      =============   =============   =============   =============   =============   =============
</TABLE>


NOTE 16 - BUSINESS SEGMENTS

We operate in five business segments plus a corporate group as described in Note
1. Segment results  include all direct and contractual  revenues and expenses of
each  segment  and   allocations   of  indirect   expenses   based  on  specific
methodologies.  These  reportable  segments are  strategic  business  units that
primarily  generate  revenue  streams  that  are  distinctly  different  and are
generally  managed   separately.   Unallocated   corporate  costs  are  reported
separately.

The table below includes CAD, and a  reconciliation  from CAD to net income,  as
CAD is the  performance  measure  used by our chief  decision-maker  to allocate
resources  among the segments.  There is no generally  accepted  methodology for
computing CAD, and the Company's computation of CAD may not be comparable to CAD
reported  by other  companies.  CAD  does not  represent  net cash  provided  by
operating  activities  determined  in  accordance  with GAAP and  should  not be
considered as an alternative to net income  (determined in accordance with GAAP)
as an indication of the Company's  performance,  as an  alternative  to net cash
provided from operating  activities  (determined  in accordance  with GAAP) as a
measure  of our  liquidity,  or as an  indication  of our  ability  to make cash
distributions.

                                       24
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


The following table provides more information regarding our segments:
<TABLE>
<CAPTION>
                                                               Three Months Ended                Nine Months Ended
                                                                  September 30,                     September 30,
                                                         ------------------------------    ------------------------------
(IN THOUSANDS)                                                2007             2006            2007              2006
-----------------------------------------------------    -------------    -------------    -------------    -------------
<S>                                                      <C>              <C>              <C>              <C>
REVENUES
  Affordable Housing                                     $      70,285    $      79,702    $     195,129    $     208,711
  Commercial Real Estate (1)                                    19,958           13,316           48,568           38,558
  Asset Management (1)                                          17,432           11,626           46,583           24,715
  Credit Risk Products                                           3,986            1,390           11,539            1,400
  Corporate Group                                                7,745            5,347           23,914           14,091
  Consolidated Partnerships (2)                                 77,148           26,104          186,653           46,812
  Elimination of intersegment transactions                     (38,203)         (29,537)        (101,806)         (75,277)
                                                         -------------    -------------    -------------    -------------
Consolidated Revenues                                    $     158,351    $     107,948    $     410,580    $     259,010
                                                         =============    =============    =============    =============

CAD
  Affordable Housing                                     $      21,976    $      51,036    $      62,779    $     111,653
  Commercial Real Estate (1)                                    17,797            9,594           28,293           14,054
  Asset Management (1)                                          10,585            7,417           24,627           13,871
  Credit Risk Products                                           3,741           (1,060)          11,806           (5,364)
  Unallocated corporate costs                                  (23,955)         (23,382)         (65,844)         (51,589)
                                                         -------------    -------------    -------------    -------------
Consolidated CAD                                                30,144           43,605           61,661           82,625

  Reconciliation of CAD to net income:
    Fees deferred for GAAP (3)                                   1,367          (14,394)          (7,976)         (23,814)
    Depreciation and amortization expense                      (12,041)         (10,832)         (34,133)         (33,961)
    Interest income yield adjustments (4)                       (2,545)          (3,647)          (7,154)          (4,085)
    Gain on sale of investments (5)                               (556)           2,188            2,324            9,001
    Loss on impairment of assets                                  (548)            (394)         (19,933)          (2,665)
    Write-off of intangible assets                                  --           (2,547)              --           (2,547)
    Tax adjustment (6)                                             244              (63)            (952)            (282)
    Non-cash compensation (7)                                   (1,927)          (9,169)         (14,980)         (12,583)
    Difference between subsidiary equity distributions
      and income allocated to minority interests (8)             4,291            2,978           26,035           13,212
    Non-cash equity income (9)                                     129            6,402             (275)           5,754
    Preferred dividends                                          1,188            1,188            3,564            3,564
    Loss on fair value of derivatives                           (7,963)            (405)          (7,074)            (202)
    Other, net                                                  (1,141)            (339)            (230)            (541)
                                                         -------------    -------------    -------------    -------------
Consolidated Net Income                                  $      10,642    $      14,571    $         877    $      33,476
                                                         =============    =============    =============    =============

DEPRECIATION AND AMORTIZATION
  Affordable Housing                                     $         372    $         392    $         953    $       5,256
  Commercial Real Estate (1)                                     4,120            5,034           12,345           13,795
  Asset Management (1)                                             259               32              324               82
  Credit Risk Products                                               3               --                8               --
  Corporate Group                                                7,087            5,241           19,902           13,762
  Consolidated Partnerships                                        200              133              601            1,066
                                                         -------------    -------------    -------------    -------------
Consolidated Depreciation and Amortization               $      12,041    $      10,832    $      34,133    $      33,961
                                                         =============    =============    =============    =============
</TABLE>

<TABLE>
<CAPTION>
                                                                                           September 30,    December 31,
                                                                                               2007             2006
                                                                                           -------------    -------------
<S>                                                                                        <C>              <C>
IDENTIFIABLE ASSETS
  Affordable Housing                                                                       $   3,069,420    $   2,866,346
  Commercial Real Estate (1)                                                                     346,236          390,886
  Asset Management (1)                                                                            12,676           13,754
  Credit Risk Products                                                                            69,613           52,337
  Consolidated partnerships (2)                                                                7,360,616        6,046,429
  Corporate Group                                                                                693,591          794,619
  Elimination of intersegment balances                                                          (470,181)        (475,855)
                                                                                           -------------    -------------
Consolidated Identifiable Assets                                                           $  11,081,971    $   9,688,516
                                                                                           =============    =============
</TABLE>

                                       25
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


(1) Includes  Investors  as of August  2006.
(2) Includes funds sponsored by Investors as of August 2006.
(3) Represents  the  net  difference  between  fees  received  at the  time of a
    transaction  that are  recognized  immediately  for CAD but are deferred and
    recognized  over  time for GAAP  accounting  (i.e.:  fund  sponsorship  fees
    recognized over the relevant service periods) or upon a later event (such as
    mortgage origination fees recognized upon settlement of a loan sale).
(4) Represents  the adjustment  for  amortization  of bond discounts or premiums
    that are recognized immediately for CAD but are deferred and recognized over
    time for GAAP accounting,  as well as the difference between actual interest
    income received and income recognized under the effective yield method.
(5) Represents  non-cash gain recognized on sale of mortgage loans when MSRs are
    retained and gains on sales of mortgage revenue bonds.
(6) Represents the difference  between the tax benefit recorded and the net cash
    amount we expect to pay or receive in relation to the current period.
(7) Represents the add-back of amortization of costs  recognized for share-based
    compensation and non-cash compensation related to fund earnings.
(8) Represents the difference  between actual  distributions to SCU, SMU and SCI
    holders  (which  is  based  on  the  common  share  distribution  rate)  and
    accounting allocation of earnings, which is based on the represented portion
    of combined common, CRA and subsidiary equity in allocating GAAP net income.
(9) Represents the difference  between equity income recorded in accordance with
    GAAP and cash dividends received.


NOTE 17 - RELATED PARTY TRANSACTIONS

INVESTMENTS IN AND LOANS TO AFFILIATES

The  components of  investments  in and loans to affiliates are presented in the
table below:
<TABLE>
<CAPTION>
                                                 September 30,    December 31,
(IN THOUSANDS)                                        2007             2006
---------------------------------------------    -------------    -------------
<S>                                              <C>              <C>
Loan to AMAC                                     $      39,300    $      15,000
Investment in AMAC common and preferred shares          10,390               --
Co-investment in CUC                                     3,731            3,066
PRS/CRG/ERC advances, net                                2,701           13,780
Due (to) from unconsolidated partnerships, net          (1,834)          31,467
Fees receivable, net                                     5,531            2,536
                                                 -------------    -------------

                                                 $      59,819    $      65,849
                                                 =============    =============
</TABLE>

Note: The above table does not include our  co-investment of $66.0 million as of
September  30,  2007,  and  $65.0  million  as of  December  31,  2006,  in  the
consolidated  CMBS  and  Direct  Loan  Fund  Partnerships  as  the  amounts  are
eliminated in consolidation.


INCOME STATEMENT IMPACT

Our Condensed  Consolidated  Statements of Income included the following amounts
pertaining to related party transactions:
<TABLE>
<CAPTION>
                                                             Three Months Ended               Nine Months Ended
                                                                September 30,                    September 30,
                                                      ------------------------------    ------------------------------
(IN THOUSANDS)                                             2007             2006             2007            2006
----------------------------------------------------  -------------    -------------    -------------    -------------
<S>                                                   <C>              <C>              <C>              <C>
TRCLP shared service fee expense                      $          39    $        (154)   $        (243)   $        (471)
TRCLP property management services expense            $      (1,061)   $      (1,116)   $      (3,261)   $      (3,216)
AMAC asset management and incentive management fees
   and expense reimbursements                         $         953    $       3,348    $       2,794    $       5,128
AMAC credit facility interest income                  $         856    $         360    $       1,758    $       1,105
AMAC servicing fee income                             $         176    $          --    $         494    $          --
Equity in earnings of AMAC                            $         662    $          --    $         662    $          --
</TABLE>

                                       26
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


A. AMAC

Through one of our subsidiaries,  we manage the operations of AMAC. In addition,
in March 2007, we entered into a share purchase plan under Rule 10b5-1 under the
Securities Exchange Act of 1934, as amended,  whereby we may purchase up to 9.8%
of the  outstanding  common  shares of AMAC in  open-market  purchases  based on
pre-determined parameters.  Through September 30, 2007, we purchased 0.5 million
common  shares  under this plan,  or 5.9% of the  outstanding  common  shares of
beneficial interests. Furthermore, in July 2007, we purchased 0.3 million shares
of 7.25% Series A Cumulative  Convertible  Preferred  Shares  issued by AMAC for
$7.0  million in  connection  with AMAC's  public  offering of such  shares.  We
account  for  these  investments  on  the  equity  method  as  we  can  exercise
significant  influence  over AMAC's  financial  and  operating  policies via our
advisory agreement.

In April 2007,  we increased the capacity of the  revolving  credit  facility to
AMAC from $50.0 million to $80.0 million and extended the term to June 2008 with
a one year optional  extension.  This facility,  bearing  interest at LIBOR plus
3.0%,  is used by AMAC to purchase  new  investments  and for general  corporate
purposes.  Income we earn from this  facility  is  included  in "Other  interest
income" in the Condensed  Consolidated  Statements of Income.  In the opinion of
management,  the terms of this facility are consistent with similar transactions
with independent third parties.

We  collect  asset   management  and  incentive   management  fees  and  expense
reimbursements  from AMAC  pursuant  to an  advisory  agreement.  These fees and
reimbursements  are  included  in "Fee  income"  in the  Condensed  Consolidated
Statements  of Income.  Effective  March 2007,  we entered  into a new  advisory
agreement whereby the basis of certain of the fees we earn has changed, although
we do not  expect  the amount of fees  earned to differ  significantly  from the
previous agreement absent the effect of AMAC's growth.

During 2007, our Commercial Real Estate  subsidiaries  originated $250.1 million
in loans on behalf of AMAC and,  pursuant to the  advisory  agreement,  received
$1.1 million of mortgage  banking fees from the borrowers.  We record these fees
in "Fee income" in the Condensed Consolidated Statements of Income.

We serve as the collateral manager for AMAC's $400.0 million CDO and service all
of the loans in AMAC's investment portfolio,  performing all primary and special
servicing functions.  Pursuant to the servicing agreement,  we receive fees from
AMAC based on the dollar  amount of loans we  service  and record  these fees in
"Fee income" in the Condensed Consolidated Statements of Income.

During  2006,  Centerline  Real  Estate  Special  Situations  Mortgage  Fund LLC
("CRESS",  formerly  ARCap Real Estate  Special  Situations  Mortgage Fund LLC),
entered into a  co-investment  agreement  with AMAC whereby both  participate in
investment opportunities that are originated by our subsidiaries and meet mutual
investment  criteria.  In addition,  during  March 2007,  AMAC sold its economic
interest in a group of properties to CRESS for $12.0 million.

B.  THE RELATED COMPANIES L.P.

General and administrative  expenses include shared service fees paid or payable
to The Related Companies, L.P. ("TRCLP"), a company controlled by our Chairman.

In  addition,  a  subsidiary  of  TRCLP  earned  fees  for  performing  property
management  services for various  properties held in LIHTC Fund  Partnerships we
manage and are included in "Other expenses of consolidated  partnerships" in the
Condensed Consolidated Statements of Income.

During the nine months ended  September  30, 2007,  we acquired  three  mortgage
revenue bonds secured by  properties  developed by a subsidiary of TRCLP.  LIHTC
Fund  Partnerships  that we consolidate  also provided equity financing to these
properties.  CRESS also acquired participation  interests with AMAC in two loans
secured by properties developed by TRCLP.

C.  CO-INVESTMENT IN CUC

Centerline  Urban  Capital I, LLC ("CUC",  formerly  CharterMac  Urban Capital I
LLC), is an investment  fund with the  California  Public  Employees  Retirement
System ("CalPERS") as majority investor,  focusing on investments in multifamily
properties  in  major  urban  markets.   Our  membership   interest  includes  a
co-investment  obligation  amounting  to 2.5% of capital  invested  (see Note 18
regarding future funding commitments).

                                       27
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


D. PRS/CRG/ERC ADVANCES

The advances due from PRS/CRG/ERC relate to the financial  difficulties of three
developers  and  our  subsequent  actions  to  protect  our  investments  in the
properties that were under development (see Note 18). The above balances are net
of eliminations  with liabilities of consolidated  partnerships of $32.3 million
at September 30, 2007, and $24.3 million at December 31, 2006.

E.  DUE FROM UNCONSOLIDATED PARTNERSHIPS

Due from  unconsolidated  partnerships  represents monies advanced to investment
funds that we sponsor  but do not  control.  The  decline  in the  balance  from
December 31, 2006,  relates to temporary  loans made to investment  funds during
the fourth  quarter of 2006, a  substantial  portion of which were repaid in the
first quarter of 2007.

F. OTHER

Substantially  all fund origination  revenues in the Affordable  Housing segment
are received from LIHTC Fund Partnerships we have originated and manage, many of
which comprise the  partnerships  that we consolidate.  While  affiliates of our
Company hold equity  interests in the investment  funds' general  partner and/or
managing member/advisor,  we have no direct investments in these entities and we
do not guarantee  their  obligations.  We have agreements with these entities to
provide  ongoing  services on behalf of the  general  partners  and/or  managing
members/advisors  and we receive  all fee  income to which  these  entities  are
entitled.

As of September 30, 2007, our subsidiary  Centerline Affordable Housing Advisors
LLC ("CAHA",  formerly CharterMac Capital LLC), controlled certain partnerships.
Those entities,  in turn, were the general partners of investment  partnerships.
These investment  partnerships,  in turn, were non-equity  managing  partners of
local partnerships that are obligors of certain of our mortgage revenue bonds.

In  connection  with the 2002  refinancing  of a  property  partly  owned by our
Chairman,  we entered into an agreement  which allows the revenue bond to be put
to us should the owner of the  underlying  property  default on the bond. We, in
turn,  entered  into  agreements  which  allow us to put the bond to the general
partners of the owner who are  affiliates of the Company.  This right is secured
by collateral  assignments of the general partners' partnership interests in the
limited partnership which owns the underlying property.


NOTE 18 - COMMITMENTS AND CONTINGENCIES

PRS/CRG/ERC

PRS/ CRG

PRS Companies  ("PRS") and Capital Realty Group ("CRG") were sponsors of certain
property  partnerships  for which we hold mortgage revenue bonds and/or to which
investment funds we sponsor have contributed equity. A construction affiliate of
PRS  served  as  general  contractor  for  most of  these  partnerships.  Due to
financial  difficulties  experienced by PRS and its construction  affiliate,  we
ceased our business  dealings with PRS and acquired the general partner interest
in certain partnerships  sponsored by PRS as part of agreements reached in April
2005 (the "PRS Partnerships").  There were two additional projects for which the
PRS construction  affiliate was general contractor (the "GCG  Partnerships") for
which the general partner interest owned by PRS or an affiliate were transferred
to us at the same time.

Likewise,  we entered into  agreements in April of 2005 with CRG with respect to
certain  partnerships  in which CRG served as sponsor (the "CRG  Partnerships").
The PRS financial  difficulties  created  construction  finance  shortfalls that
created liquidity  problems for these partnerships as well. In December of 2006,
we entered into an additional  agreement  with CRG to transfer to us the general
partner  interests  held by CRG in four  additional  properties.  This agreement
included the  termination of certain rights  retained by CRG with respect to the
CRG Partnerships in the 2005 Agreements and we have ceased our business dealings
with CRG.

The PRS Partnerships,  GCG Partnerships, and CRG Partnerships are set out in the
table below.

In addition  to the PRS  Partnerships,  CRG  Partnerships  and GCG  Partnerships
described  above, we own bonds that finance other  partnerships  associated with
PRS and CRG. In these partnerships, our funds are not the equity sponsor, and we
will  look  to  the  respective  equity  investor  to  take  control,   complete
construction and stabilize the partnerships.  Absent a satisfactory  resolution,
we may exercise our available remedies to protect our investments.

                                       28
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


In 2005, we halted  construction  on one property,  and foreclosed upon and sold
the property in 2006 for our carrying basis. In 2006, we halted  construction on
another  property and sold our general partner and limited partner  interest and
have recovered our fund's investment in the project.

In August  2007,  we entered  into a letter of intent for a developer to acquire
the general  partnership  interests in nine of the PRS  partnerships  located in
Atlanta,  Georgia. Under the proposed arrangement,  the acquirer will manage the
projects, and we will fund a fixed amount of advances until the projects achieve
stabilization  and  positive  cash flow,  after which we will  jointly  fund any
required  advances with the  acquirer.  We will also jointly share fees and cash
flow payable to the general  partners of the projects.  We  anticipate  that the
general partner interests in the projects will be acquired prior to year-end.

ERC

To protect our interests in properties  for which we had provided debt or equity
financing,  in October 2006 we reached an agreement with ERC, Inc. (a developer)
to acquire its general partner interests in partnerships it had sponsored. Those
partnerships are also summarized in the table below.

One of the properties remains under construction,  and we expect that the equity
of the  applicable  property  partnerships  is sufficient to cover the estimated
costs  to  complete  this  property.  We  may  have  to  advance  funds  to  the
partnerships  after  September  30,  2007,  to cover  operating  costs until the
properties achieve stabilization,  which amounts we do not expect to exceed $3.5
million. We anticipate the future equity payments due these partnerships will be
sufficient to repay the advances.

In October 2007,  we entered into letters of intent to sell the general  partner
interests  in 17 of the ERC  partnerships  to a developer.  If the  transactions
close, the developer will acquire six of the general partner  interests for $4.3
million and the remaining 11 general partner interests for a specified  multiple
of cash flow as the properties  stabilize  during a three-year  period.  We will
jointly  fund  property  deficits  with the  acquirer  up to  specified  maximum
amounts.

Summary of Impact
-----------------

In the first  quarter of 2007,  we  reassessed  our strategy with respect to the
ultimate recovery of our investments in these properties.  We have undertaken an
initiative  to  determine  the most  advantageous  strategy  for recovery on the
mortgage  revenue bonds.  The strategies to be followed for individual bonds may
involve  a change  in our  planned  holding  period of the asset or the level of
additional funding we may provide, if any. The initial assessment of four of the
mortgage  revenue  bonds caused us to recognize  an  impairment  charge of $13.7
million in the first quarter of 2007 (see Note 2) due in part to the revision of
the  estimated  level  and  timing  of  cash  flows  for  the  valuation  of the
properties.  In connection with that  determination,  management  concluded that
advances  made to our  sponsored  funds  in  connection  with  those  underlying
properties  may not be fully  recoverable  and we  recorded  a  reserve  of $5.1
million in 2007.

                                       29
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


The partnerships are summarized as follows:
<TABLE>
<CAPTION>
                                                                                                                      (in thousands)
                                                                                                                      -------------
                                                                                                                      Fair Value of
                                                                                                                        Mortgage
                                        Centerline      Centerline                                                       Revenue
                                      Holds or Will      Capital       Included in                                        Bonds
                                           Hold         Sponsored         Credit       Centerline     Third Parties   Outstanding at
                                         Mortgage     Fund is Equity  Intermediated     Holds GP        Provided      September 30,
                          Number       Revenue Bond      Partner           Funds        Interest         Equity           2007
                      -------------   -------------   -------------   -------------   -------------   -------------   -------------
<S>                              <C>             <C>             <C>             <C>             <C>             <C>  <C>
                            PRS
                       Partnerships
Lease-Up                         11              10               6               4               6               5   $     117,864
Stabilized                        2               2              --              --              --               2          18,672
                      -------------   -------------   -------------   -------------   -------------   -------------   -------------
Subtotal                         13              12               6               4               6               7         136,536
                      -------------   -------------   -------------   -------------   -------------   -------------   -------------

                            CRG
                       Partnerships
Stabilized                        3               1               3               3              --              --          12,725
Lease-Up                          4               4               4               2               3              --          65,093
Rehab                             1               1               1               1               1              --          25,647
Construction                      1               1               1              --              --              --             972
                      -------------   -------------   -------------   -------------   -------------   -------------   -------------
Subtotal                          9               7               9               6               4              --         104,437
                      -------------   -------------   -------------   -------------   -------------   -------------   -------------

                            GCG
                       Partnerships
Lease-Up                          2               2               2               1              --              --          30,587
                      -------------   -------------   -------------   -------------   -------------   -------------   -------------
Subtotal                          2               2               2               1              --              --          30,587
                      -------------   -------------   -------------   -------------   -------------   -------------   -------------
                     ERC Partnership
Construction                      1               1               1               1               1              --          10,475
Lease-Up                         13              12              13              12              13              --         104,590
Stabilized                        4               4               4               3               4              --          27,254
                      -------------   -------------   -------------   -------------   -------------   -------------   -------------
Subtotal                         18              17              18              16              18              --         142,319
                      -------------   -------------   -------------   -------------   -------------   -------------   -------------
Total                            42              38              35              27              28               7   $     413,879
                      =============   =============   =============   =============   =============   =============   =============
Total eliminated in
  consolidation                                                                                                       $     287,628
                                                                                                                      =============
</TABLE>


Our potential exposure falls into three categories as follows:

    Cash  required  to bring the  properties  to  break-even  operation  -
    -------------------------------------------------------------------
     As of September 30, 2007, advances  outstanding totaled $35.0 million,  net
     of the reserve described above.  These advances,  and additional loans, are
     assessed  periodically for  collectability  and the impact on the potential
     impairment  of existing  mortgage  revenue  bonds.  At  present,  we do not
     anticipate  that any of the  remaining  advances  would require a charge to
     expense,  although  as  the  strategy  with  respect  to  recovery  on  any
     individual mortgage revenue bond is implemented,  circumstances may require
     a change in that outlook.

     Based on  current  lease-up  estimates  and  projected  costs  to  complete
     construction,  we  estimate  that the  properties,  in the  aggregate,  may
     require  $8.5  million  of  additional   cash  (to  supplement   cash  from
     operations) to reach full stabilization. While we expect that future equity
     contributions  at the fund level may  provide  some of this  support to the
     properties, we may need to advance some of this amount and a portion of any
     such  advances  may be  charged  directly  to  expense  depending  upon our
     assessment of the funds' ability to repay the advances.

    Potential impact on mortgage  revenue bonds -
    -------------------------------------------
     As noted  above,  we  recognized  impairment  with  respect  to four of the
     affected  bonds in the first quarter of 2007.  An additional  impairment of
     $0.7  million  was  recorded  in the second  quarter  and $0.5  million was
     recorded in the third  quarter of 2007.  While we do not believe that there
     is  other-than-temporary  impairment of any of the other bonds, the outcome
     of our strategic plan with respect to this portfolio may cause  impairments
     to  be  recognized  as   other-than-temporary   should  we  determine  that
     disposition  of the bond or other actions be the best course of action with
     respect to recovering  our investment or if the cash flow  projections  are
     affected by planned  courses of action.  Any such  additional  impairments,
     should they be determined, can not currently be estimated.

    Potential cost to provide specified yields -
    ------------------------------------------
     As noted in the table above, 27 of the  partnerships are included in credit
     intermediated funds for which we are obligated to provide specified yields.
     As  construction  delays are likely to reduce  the  expected  yields of the
     properties themselves, performance of the funds is likely to be impacted as
     well. The  obligations,  however,  provide for expected  yields on pools of
     properties,  some of which are  performing  above  expected  levels and the
     funds themselves often provide for adjustors that may mitigate the negative
     impact that would  arise from the  construction  delays over the  guarantee
     period covered by the agreements. Our current estimate given these factors,

                                       30
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


     and assuming that the property level  partnerships  meet their  obligations
     under  existing  partnership  agreements,  is that no exposure  under these
     agreements is probable at this time.

There can be no assurance  that a bankruptcy by or against PRS or its affiliates
or  against  ERC may  not  give  rise  to  additional  claims  concerning  these
partnerships.

FORWARD TRANSACTIONS

At September  30, 2007,  our  Commercial  Real Estate  subsidiaries  had forward
commitments  under  Fannie Mae and  Freddie Mac  programs of $259.0  million for
mortgages to be funded  through March 2010,  and each lending  commitment has an
associated sale commitment.  In addition,  those subsidiaries had commitments to
sell mortgages totaling $84.8 million. Of this amount,  $63.9 million was funded
as of September 30, 2007,  and is included in "Other  investments"  as "Mortgage
loans" on the Condensed Consolidated Balance Sheet. The balance of $20.9 million
is to be funded later in 2007.

We have  entered  into  transactions  to  purchase  mortgage  revenue  bonds  at
predetermined  prices  and  interest  rates,  but  only if  construction  of the
property is completed.  These forward commitments create derivative  instruments
under  SFAS No.  133,  which  have been  designated  as a cash flow hedge of the
anticipated  funding of the  mortgage  revenue  bonds and are  recorded  at fair
value,  with changes in fair value recorded in other  accumulated  comprehensive
income until the mortgage  revenue bonds are funded.  The total potential amount
we could be required to fund is $3.9 million by the end of 2007.

Additionally,  we have certain  other bonds that we fund on an as needed  basis.
The remaining balance to be funded on these drawdown bonds is approximately $2.1
million at September 30, 2007.

MORTGAGE LOAN LOSS SHARING AGREEMENTS

Pursuant  to a master  loss  sharing  agreement  under the Fannie Mae  Delegated
Underwriting  and Servicing  ("DUS")  program,  we assume  responsibility  for a
portion of any loss that may result from borrower defaults,  based on Fannie Mae
loss sharing  formulas.  At September 30, 2007, a significant  proportion of our
loans sold to Fannie Mae  consisted  of Level I loans,  meaning,  in most cases,
that we are responsible for the first 5% of the unpaid  principal  balance and a
portion of any additional  losses to a maximum of 20% of the original  principal
balance; Fannie Mae bears any remaining loss. Pursuant to this agreement, we are
responsible for funding 100% of mortgagor  delinquency  (principal and interest)
and  servicing  (taxes,  insurance and  foreclosure  costs)  advances  until the
amounts  advanced  exceed  5% of the  unpaid  principal  balance  at the date of
default. Thereafter, we may request interim loss sharing adjustments which allow
us to fund 25% of such advances until final settlement under the agreement.

We also participate in loss sharing  transactions  under Freddie Mac's Delegated
Underwriting  Initiative  Program  ("DUIP")  whereby we originate loans that are
purchased by Freddie Mac.  Under the terms of our master  agreement with Freddie
Mac, we are  obligated to  reimburse  Freddie Mac for a portion of any loss that
may result from borrower  defaults on DUIP  transactions.  For such loans,  if a
default  occurs,  our  share of the  standard  loss  will be the first 5% of the
unpaid  principal  balance  and  25% of the  next  20% of the  remaining  unpaid
principal balance to a maximum of 10% of the unpaid principal balance.  The loss
on a defaulted  loan is calculated as the unpaid  principal  amount due,  unpaid
interest due and default  resolutions  costs  (taxes,  insurance,  operation and
foreclosure costs) less recoveries.

Our maximum exposure at September 30, 2007,  pursuant to these  agreements,  was
$836.6  million  (representing  what we would  owe in  accordance  with the loss
sharing  percentages  with Fannie Mae and Freddie Mac  described  above if every
loan  defaulted  and losses were  incurred in amounts  equal to or greater  than
these  levels  for  which  we are  responsible),  although  this  amount  is not
indicative  of our actual  potential  losses.  We maintain an allowance for loan
losses for loans  originated  under  these  product  lines at a level  that,  in
management's judgment, is adequate to provide for estimated losses. At September
30,  2007,  that reserve was $13.1  million,  which  represents  our estimate of
potential losses as of that date.

As of September  30, 2007,  we  maintained  collateral  consisting of commercial
paper and Fannie Mae and Freddie  Mac  securities  of $10.6  million and a money
market  account of $1.1  million,  which is included in  restricted  cash in the
Condensed  Consolidated  Balance  Sheet,  to satisfy  the Fannie Mae  collateral
requirements of $10.9 million.

We are also  required  by the master  agreement  with  Freddie  Mac to provide a
letter of  credit  in the  amount of 8% of the  original  principal  balance  as
collateral security for payment of the reimbursement obligation. A reimbursement
agreement with the Bank of America to provide a master letter of credit covering
the  collateral  requirement  up to $8.0  million  covers  this letter of credit
requirement.  At  September  30,  2007,  commitments  under  this  reimbursement
agreement totaled $6.6 million.

                                       31
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


YIELD TRANSACTIONS

We have  entered  into  several  credit  intermediation  agreements  with either
Natixis  or  Merrill  Lynch & Co.,  Inc.  ("Merrill  Lynch")  (each  a  "Primary
Intermediator") to provide  agreed-upon rates of return for pools of multifamily
properties to funds sponsored by CAHA. In return,  we have or will receive fees,
generally at the start of each credit  intermediation  period. There are a total
of 16 outstanding agreements to provide the specified returns:

     o    through the construction and lease-up phases of the properties;
     o    for the period from the  completion of the  construction  and lease-up
          phases through the operating phase of the properties; or
     o    covering both periods.

Total  potential  exposure  pursuant  to  these  transactions  is $1.3  billion,
assuming the funds achieve no return  whatsoever.  We have analyzed the expected
operations of the underlying  properties and believe there is no risk of loss at
this time,  as we have never yet been called upon to make  payments  under these
agreements.  Should  our  analysis  of risk  of loss  change  in the  future,  a
provision  for  possible  losses  might be  required  pursuant  to SFAS  No.  5,
ACCOUNTING FOR CONTINGENCIES. The fair value of these obligations,  representing
the deferral of the fee income over the obligation periods, was $35.5 million as
of September  30, 2007.  This amount is included in "deferred  revenues"  within
"Accounts  payable,  accrued  expenses and other  liabilities"  on our Condensed
Consolidated Balance Sheet. Refer also to PRS/CRG/ERC above, regarding potential
exposure under existing obligations.

Some of the property-level  partnerships have financed their properties with the
proceeds of our mortgage revenue bonds. In a portion of these cases, the Primary
Intermediator has required that those mortgage revenue bonds be deposited into a
trust from which senior and  subordinated  trust  certificates  were issued with
approximately  50% of  these  trust  certificates  being  subordinated.  We have
financed a portion of these senior and subordinated trust  certificates  through
our fixed rate  securitization  transaction.  By placing  these  bonds into this
trust  structure  we have  restricted  our ability to  foreclose  on these bonds
without the consent of the Primary Intermediator.

OTHER CONTINGENT LIABILITIES

We have entered into several transactions pursuant to the terms of which we will
provide credit support to construction lenders for project completion and Fannie
Mae conversion.  In some instances,  we have also agreed to acquire subordinated
bonds to the extent the construction  period bonds do not fully convert. In some
instances, we also provide payment, operating deficit, recapture and replacement
reserve   guarantees  as  business   requirements   for   developers  to  obtain
construction  financing.  Our  maximum  aggregate  exposure  relating  to  these
transactions  was $191.8  million as of September  30,  2007.  The fair value of
these  obligations,  representing  the  deferral  of the  fee  income  over  the
obligation periods,  was $0.8 million as of September 30, 2007. To date, we have
had  minimal  exposure to losses  under these  transactions  and  anticipate  no
material liquidity requirements in satisfaction of any guarantee issued.

At September  30, 2007,  we had unused  letters of credit  totaling $1.4 million
described in MORTGAGE LOAN LOSS SHARING AGREEMENTS above.

Centerline  Financial has entered into two credit  intermediation  agreements to
provide for monthly  principal and interest debt service  payments for debt owed
by property  partnerships  only to the extent there is a shortfall  payment from
the  underlying  property.  In return,  we receive fees monthly based on a fixed
rate until the expiration of the agreements  which occur in 2009 and 2023. Total
potential  exposure  pursuant to these  transactions is $19.8 million as well as
monthly interest obligations, assuming the bonds default and cannot be sold. The
recourse  upon  default  would  be to  acquire  the bond  and  foreclose  on the
underlying property at which point the property would either be rehabilitated or
sold.  The fair value of the  obligation,  representing  the deferral of the fee
income over the  obligation  period,  was $1.3 million as of September 30, 2007.
This amount is included in "Deferred revenues" within "Accounts payable, accrued
expenses and other liabilities" on our Condensed Consolidated Balance Sheet.

LEGAL CONTINGENCIES

Claims  have  been  asserted  against  our  subsidiaries  in  two  separate  but
interrelated lawsuits relating to two properties for which we have provided debt
and equity  financing,  but associated  with the same  developers.  The lawsuits
allege, among other things:

     o    breach of fiduciary duty;
     o    breach of the implied covenant of good faith and fair dealing;
     o    intentional misrepresentation, fraud and deceit;
     o    negligent misrepresentation; and
     o    tortious interference with contracts.

                                       32
<PAGE>

                           CENTERLINE HOLDING COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


One of the lawsuits claims  unspecified  damages while the other lawsuit alleges
damages of at least $10 - 15 million. One suit (which alleges losses of at least
$10 million) is currently  scheduled to commence  trial on June 30, 2008 and the
other suit (with unspecified  damages claimed) is currently  scheduled for trial
in May 2008.  The  parties  have  engaged in  discovery  and have  entered  into
settlement  discussions seeking a global resolution of all of these disputes. If
such a settlement cannot be achieved, we intend to defend vigorously against the
claims.  We are unable at the present time to estimate what potential losses, if
any, may arise in connection with this litigation.

We are subject to routine litigation and administrative  proceedings  arising in
the ordinary  course of business.  Management does not believe that such matters
will have a  material  adverse  impact on our  financial  position,  results  of
operations or cash flows.

FUNDING COMMITMENTS

CUC

Our membership interest in CUC (see Note 17) includes a co-investment obligation
amounting to 2.5% of capital  invested.  Based upon the current funding limit of
CUC, our remaining  commitment as of September 30, 2007, was approximately  $0.2
million.

INVESTMENTS IN CMBS AND DIRECT LOAN FUNDS

We participate  as co-investor in the CMBS and Direct Loan funds we sponsor.  As
of September 30, 2007, our remaining  unfunded  capital  commitments  were $13.1
million.


NOTE 19 - MARKET CONDITIONS AND SUBSEQUENT EVENTS

Recent Market Events
--------------------
During and subsequent to the third quarter of 2007,  developments  in the market
for many types of mortgage products (including mortgage-backed  securities) have
resulted in reduced  liquidity  for these  assets.  Although  this  reduction in
liquidity  has been most acute with regard to  single-family  subprime  mortgage
assets,  to which we are not  exposed,  there has been an overall  reduction  in
liquidity across the credit spectrum of mortgage products.

As of the  date of this  report,  management  is not  aware  of any  significant
decreases in the fair value of its assets. Additionally,  to date, the impact on
our operations has been limited in that our operating cash flows are stable,  we
have not  experienced  significant  margin  calls on our  repurchase  facilities
(since we do not borrow to the full extent of available  advance  rates) and our
credit  facilities  have terms not subject to  fluctuating  terms in response to
these market conditions.  As such, management believes we are able to manage our
operations  so that we are able to limit the impact to our liquidity as a result
of recent events. Furthermore, our current financing sources and cash flows from
operations  are adequate to meet our ongoing  liquidity  needs for the near term
and, as of October 30, 2007,  Standard & Poor's  rated our credit  quality as BB
with a stable outlook.

ERC
---

In October 2007,  we entered into letters of intent to sell the general  partner
interests  in 17 of the ERC  partnerships  to a developer.  If the  transactions
close, the developer will acquire six of the general partner  interests for $4.3
million and the remaining 11 general partner interests for a specified  multiple
of cash flow as the properties  stabilize  during a three-year  period.  We will
jointly  fund  property  deficits  with the  acquirer  up to  specified  maximum
amounts.


                                       33
<PAGE>

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

Factors Affecting Comparability
-------------------------------

In August 2006, we acquired  Centerline  Investors I LLC ("Investors")  formerly
ARCap Investors,  LLC. Prior to the  acquisition,  we had recorded equity income
from a 10.7%  investment in Investors  (included in our  Commercial  Real Estate
segment). Following the acquisition, operating results of Investors are included
in our Commercial Real Estate,  Asset Management and  Consolidated  Partnerships
segments.  In the  second  quarter  of  2006,  we  accrued  restructuring  costs
associated with integration  activities associated with the planned acquisition.
Subsequent  to  the  Investors  acquisition,   we  incurred  increased  non-cash
compensation  costs due to non-vested share grants issued in connection with the
acquisition.  Sharing of promote income related to funds we manage subsequent to
the acquisition cause  fluctuations in our expenses depending on the performance
of those funds.

In September 2006, we terminated our financial  relationship  with Capri Capital
Advisors LLC ("CCA"). In connection with the termination, we recognized one-time
gains  totaling  $6.9  million.  We also closed a subsidiary  and wrote off $2.5
million of intangible assets in the third quarter of 2006.

During  June  2006,  we  launched   Centerline   Financial  to  provide   credit
intermediation  products to the affordable  housing finance industry.  We expect
our majority  ownership of Centerline  Financial will enable us to prospectively
retain a significant  portion of the fees that we would have paid to third party
credit  providers.  We incurred various start-up costs in the first half of 2006
in connection with this subsidiary.

RESULTS OF OPERATIONS
---------------------

THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
-----------------------------------------------

Presented in the table below is a summary of our operations for the three months
ended September 30, 2007 and 2006:
<TABLE>
<CAPTION>

                                                 % of                           % of
(DOLLARS IN THOUSANDS)            2007         Revenues          2006         Revenues        % Change
--------------------------   -------------   ------------   -------------   ------------    ------------
<S>                          <C>                   <C>      <C>                    <C>             <C>
Total revenues               $     158,351         100.0%   $     107,948          100.0%           46.7%

Total expenses               $     155,963          98.5%   $     119,725          110.9%           30.3%
Income before income taxes   $       9,081           5.7%   $      21,804           20.2%          (58.4)%
Net income                   $      10,642           6.7%   $      14,571           13.5%          (27.0)%
</TABLE>


The growth in revenues was due mostly to funds consolidated upon the acquisition
of Investors in August 2006 (as 2007  represents a full quarter of  operations),
funds sponsored in the past twelve months and the interest income of investments
held in the Investors  business.  These increases were partially offset by lower
fee revenues,  particularly in the Affordable Housing fund sponsorship  business
attributable to lower levels of equity raised during the 2007 quarter.

Total expenses in the 2007 quarter reflect  increased  interest costs due to the
growth  of  our  businesses  in  the  past  year,  and  costs  incurred  by  the
consolidated partnerships,  the population of which has grown significantly with
the acquisition of Investors and through new fund sponsorships.

Income before income taxes decreased in the 2007 quarter as compared to the 2006
quarter. Much of the decrease was due to:

     o    a one-time gain of $6.9 million in 2006 related to the  termination of
          the CCA loan with no comparable gain the 2007 period; and
     o    increased  interest expense in the current year from higher borrowings
          and borrowing rates.

Partially  offsetting  these  decreases were higher interest income in 2007 from
investments  other than  mortgage  revenue bonds and the write-off of intangible
assets in 2006 related to a subsidiary  closure  with no  comparable  charges in
2007.

We conduct our operations  through  tax-flow through entities as well as taxable
corporate  entities.  The  determination of our income tax provision is based on
our taxable business. For the three months ended September 30, 2007, our taxable
corporate entities have recorded a consolidated loss before taxes,  resulting in
a corresponding tax benefit.

                                       34
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


REVENUES
<TABLE>
<CAPTION>
                                          For the Three Months Ended September 30,
                                        ---------------------------------------------
(DOLLARS IN THOUSANDS)                       2007            2006          % Change
-------------------------------------   -------------   -------------   -------------
<S>                                     <C>             <C>                     <C>
Mortgage revenue bond interest income   $      36,346   $      39,370            (7.7)%
Other interest income                          18,693           7,474           150.1
Fee income                                     24,033          30,763           (21.9)

Other revenues:
   Expense reimbursements                           7             989           (99.3)
   Rental income of real estate owned           1,814             907           100.0
   Prepayment penalties                           855           2,645           (67.7)
   Other                                        1,311           1,063            23.3
                                        -------------   -------------   -------------
Total other revenues                            3,987           5,604           (28.9)
                                        -------------   -------------   -------------
Subtotal                                       83,059          83,211            (0.2)
                                        -------------   -------------   -------------

Revenues of consolidated partnerships          75,292          24,737           204.4
                                        -------------   -------------   -------------

   Total revenues                       $     158,351   $     107,948            46.7%
                                        =============   =============   =============
</TABLE>


As noted  previously,  a large  portion of the revenue  increase  was due to the
Investors  acquisition.  Revenues  attributable to Investors are included within
other interest income,  fee income,  other revenues and revenues of consolidated
partnerships.  Adjusting to include Investors for the entire 2006 period,  total
revenues would have increased approximately 25.7%.

Mortgage revenue bond interest income and Fee income are discussed in RESULTS BY
SEGMENT below.

Other interest income includes  income from CMBS  resecuritization  certificates
held in our  Commercial  Real  Estate  segment  and  interest  earned  on escrow
balances in the Asset  Management  segment.  The  increase  compared to the 2006
period primarily relates to:

     o    interest  of  $4.7   million   generated   by  CMBS   resecuritization
          certificates  we hold through  Investors  (acquired in August 2006 and
          thus for which there was a less comparable 2006 amount); and
     o    higher cash balances  (predominantly the escrow accounts) coupled with
          increasing  market  interest  rates for temporary  investments,  which
          resulted in increased interest income of $3.5 million.

Partially  offsetting  these  increases  was the absence in 2007 of $0.3 million
interest  earned in 2006 on a $20.0 million loan to CCA. That loan was repaid in
September 2006 and there is no comparable revenue in 2007.

Revenues of consolidated partnerships increased due to:

     o    an  increase  by 14 in the  number  of LIHTC  Fund  Partnerships,  one
          additional  CMBS Fund  Partnership  and  additional  fundings  made at
          existing partnerships since September 2006; and
     o    an  increase  by 19 in the  number  of  LIHTC  Property  Partnerships,
          particularly  in the  fourth  quarter  of 2006,  which  we have  taken
          control of to protect our  investments  (see Note 18 of the  condensed
          consolidated financial statements).

In  addition,  during the current  quarter,  a full three  months of activity is
included  for the CMBS  Fund  Partnerships  and  Direct  Loan  Fund  Partnership
compared  to only a  partial  period  in 2006  (from  the date of the  Investors
acquisition).

Results of consolidated partnerships are further discussed in RESULTS BY SEGMENT
below.

Offsetting  the  revenue  gains is the  elimination  of  revenues  earned by our
subsidiaries in transactions  primarily with LIHTC Fund  Partnerships  and LIHTC
Property  Partnerships  we have  consolidated  but in which we have virtually no
equity interest.  Although the amounts are eliminated in consolidation,  the net
losses  recognized by those  partnerships in connection with these  transactions
are absorbed by their equity partners; as such, the elimination in consolidation
has a de  minimis  impact  on our net  income.  Consolidation  of the CMBS  Fund
Partnership   and  Direct  Loan  Fund   Partnership   result  in  equity  income
eliminations  as the  income we earn from  those  funds is in the form of equity
income. See OTHER INCOME AND INCOME ALLOCATIONS below.

                                       35
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


In the third  quarters of 2007 and 2006,  the  following  revenue  amounts  were
eliminated,  as they represented transactions between consolidated  partnerships
and our other component businesses:
<TABLE>
<CAPTION>
                                                                     For the Three Months Ended September 30,
                                                                 ------------------------------------------------
(DOLLARS IN THOUSANDS)                                               2007             2006            % Change
------------------------------------------------------------     -------------    -------------     -------------
<S>                                                              <C>              <C>                       <C>
Mortgage revenue bond interest income                            $       5,863    $       1,785             228.5%
Other interest income                                                       --               53                --
Fee income                                                              13,722           15,823             (13.3)
Other revenues                                                           1,772            1,590              11.4
                                                                 -------------    -------------     -------------

  Total                                                          $      21,357    $      19,251              10.9%
                                                                 =============    =============     =============
</TABLE>


EXPENSES

Additional detail regarding our expenses is presented in the table below:
<TABLE>
<CAPTION>
                                                                     For the Three Months Ended September 30,
                                                                 ------------------------------------------------
(IN THOUSANDS)                                                       2007             2006            % Change
------------------------------------------------------------     -------------    -------------     -------------
<S>                                                              <C>              <C>                      <C>
Interest expense                                                 $      41,980    $      25,649              63.7%
Interest expense - preferred shares of subsidiary                        4,724            4,724                --

Salaries and benefits                                                   27,572           26,821               2.8
Other general and administrative                                        16,720           16,858              (0.8)
                                                                 -------------    -------------     -------------
  Subtotal general and administrative                                   44,292           43,679               1.4
                                                                 -------------    -------------     -------------

Depreciation and amortization                                           12,041           10,832              11.2
Write-off of intangible asset                                               --            2,547                --
Loss on impairment of assets                                               548              394              39.1
                                                                 -------------    -------------     -------------
  Subtotal before consolidated partnerships                            103,585           87,825              17.9
                                                                 -------------    -------------     -------------

Interest expense of consolidated LIHTC Fund and Property
  Partnerships                                                           3,501            6,199             (43.5)
Interest expense of consolidated CMBS Fund and Direct Loan
  Partnerships                                                          22,271            7,182             210.1
                                                                 -------------    -------------     -------------
                                                                        25,772           13,381              92.6
                                                                 -------------    -------------     -------------

Other expenses of consolidated LIHTC Fund and Property
  Partnerships                                                          24,852           18,344              35.5
Other expenses of consolidated CMBS Fund and Direct Loan
  Partnerships                                                           1,754              175                --
                                                                 -------------    -------------     -------------
                                                                        26,606           18,519              43.7
                                                                 -------------    -------------     -------------
  Subtotal expenses of consolidated partnerships                        52,378           31,900              64.2
                                                                 -------------    -------------     -------------

  Total expenses                                                 $     155,963    $     119,725              30.3%
                                                                 =============    =============     =============
</TABLE>


The  increase in interest  expense  reflects  the higher  amount of average debt
outstanding  ($2.5  billion  in the third  quarter of 2007 as  compared  to $2.0
billion in the third quarter of 2006). The higher balance in 2007 reflects:

     o    the cost of the Investors acquisition;
     o    continuing  capital  deployment in the Affordable  Housing segment for
          mortgage revenue bond and LIHTC investments; and
     o    debt facilities of Investors used in Commercial Real Estate  investing
          and fund sponsorship activities.

In addition,  our average borrowing rate increased to 5.70% for the three months
ended  September  30, 2007 as compared to 4.90% in 2006 as a result of increases
in the SIFMA and LIBOR rates in both  years.  The effect of rate  increases  was
tempered,  however,  by a fixed  rate  securitization  program  in  place  since
mid-2006  and the interest  rate swaps that we have in place,  some of which are
"in the money".  Also contributing to the increase in interest expense is a $7.9
million charge in the 2007 period  representing  the change in the fair value of
three freestanding swaps on CMBS investments at Investors.

                                       36
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


While  our  borrowing  costs  have  increased  along  with  market  rates,   the
commencement  of  Centerline  Financial  in mid-2006  has enabled us to retain a
significant  portion of credit  intermediation  fees  historically paid to third
parties in connection with securitizations in the Affordable Housing segment. In
addition, we anticipate Centerline Financial will enable us to lower our average
cost of capital through more effective leverage of our assets.

The increase in salaries and benefits expense primarily relates to:

     o    a full three months of salaries for the  approximately  100  employees
          added upon the  Investors  acquisition  as  compared to one and a half
          months during 2006;
     o    the continued growth of our other component businesses; and
     o    higher non-cash  compensation costs related to non-vested share grants
          issued since September 2006.

Partially offsetting these increases was lower  promote-sharing  compensation in
2007 as  compared to 2006 as the prior year period  included an  unusually  high
level of promote income,  triggering a corresponding  high level of compensation
expense.

The  write-off of  intangible  assets in 2006  represents a goodwill  impairment
charge of $0.9 million to account for the portion of our total investment in and
advances to a subsidiary  that we did not expect to recover and the write-off of
$1.6 million in unamortized  other intangible  assets  recognized at the time of
its acquisition. There were no such charges in the 2007 quarter.

Loss on impairment  of assets in both 2007 and 2006 related to mortgage  revenue
bonds associated with properties experiencing  substandard performance (see Note
2 of the condensed consolidated financial statements).

Other expenses of the  consolidated  LIHTC Fund  Partnership  and LIHTC Property
Partnership increased due to the increase in the number of consolidated entities
since  September  2006  (14  additional  LIHTC  Fund  Partnerships  and 19 LIHTC
Property Partnerships).  Virtually all of the expenses of the consolidated LIHTC
Fund  Partnership and LIHTC Property  Partnerships  are absorbed by their equity
partners; as such, they have a de minimis impact on our net income.

Interest and Other expenses of consolidated  CMBS Fund  Partnerships  pertain to
funds we manage to syndicate investments in CMBS and associated resecuritization
trusts.  The  Direct  Loan  Fund  Partnership  invests  in real  estate  finance
products,  including first mortgage loans,  subordinated notes, bridge loans and
mezzanine loans.  These items were  incorporated into our financial results upon
our  acquisition  of Investors in August  2006.  Increases  over prior year also
relate to an increase in the number of  consolidated  entities  since  September
2006.

OTHER INCOME AND INCOME ALLOCATIONS
<TABLE>
<CAPTION>
                                                                     For the Three Months Ended September 30,
                                                                 ------------------------------------------------
(DOLLARS IN THOUSANDS)                                               2007             2006            % Change
------------------------------------------------------------     -------------    -------------     -------------
<S>                                                              <C>              <C>                   <C>
Equity and other income (loss)                                   $         327    $      (3,777)        (108.7) %
                                                                 =============    =============     =============

Gain on termination of CCA loan                                  $          --    $       6,916                --%
Gain on sale or repayment of loans                                       3,066            1,322             131.9
Gain on sale or repayment of mortgage revenue bonds and other
  assets                                                                   342               51                --
                                                                 -------------    -------------     -------------
                                                                 $       3,408    $       8,289             (58.9)%
                                                                 =============    =============     =============

Income allocated to preferred shares of subsidiary               $      (1,556)   $      (1,556)              --%
                                                                 =============    =============     =============

Income allocated to SCUs                                         $      (4,398)   $      (5,725)             23.2%
Income allocated to SMUs                                                   (60)            (118)             49.2
Income allocated to SCIs                                                   (57)             (29)            (96.6)
Other minority interests                                                  (792)             101                --
                                                                 -------------    -------------     -------------
Income allocated to minority interests in subsidiaries, net      $      (5,307)   $      (5,771)              8.0%
                                                                 =============    =============     =============

Loss allocated to partners of consolidated partnerships          $      82,003    $     105,392             (22.2)%
                                                                 =============    =============     =============
</TABLE>


Through  August 2006,  equity and other income  (loss)  included  equity  income
related  to our  common  and  preferred  interests  in  Investors  prior  to the
acquisition.  Beginning in May 2007, it includes  equity  income  related to our

                                       37
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


investment in AMAC (see Note 17). In all periods,  this amount also includes our
investments in tax advantaged  investment  vehicles  similar to those we sponsor
(which often  produce  equity  losses).  The loss in the 2006 period  related to
revisions  to earnings  estimates  provided  by  Investors  pre-acquisition  and
charges recorded by our other equity investees.  The increase in the 2007 period
related to the equity  income from AMAC.  Equity  income from our  investment in
CMBS Fund  Partnerships  and  Direct  Loan Fund  Partnership  is  eliminated  in
consolidation  but positively  impacts our net income.  For the third quarter of
2007, this amount was $11.4 million compared to $10.1 million in 2006.

Gain on termination  of CCA loan  represents the $6.0 million cash paid to us by
CCA to terminate our rights relating to a  participating  loan and the estimated
value of the  management  interest in CUC that was assigned to us. There were no
comparable transactions in 2007.

Gains  related to  mortgage  revenue  bonds and loans  fluctuate  in relation to
relative  activity  levels in the Affordable  Housing and Commercial Real Estate
segment operations. See RESULTS BY SEGMENT below.

The income  allocation to SCUs,  SMUs and SCIs of  subsidiaries  represents  the
proportionate  share of after-tax  income  attributable to holders of subsidiary
equity as if they were  converted  to common  shares.  Other  minority  interest
principally represents the portion of Centerline Financial owned by Natixis.

The loss  allocation to partners of  consolidated  partnerships  represents  the
allocation of operating  losses of LIHTC Fund and Property  Partnerships and the
income or losses of CMBS Fund  Partnerships  and Direct Loan Fund Partnership to
outside investors which hold the majority ownership in these partnerships.  With
respect to the LIHTC Fund Partnerships and LIHTC Property Partnerships,  we have
an  insignificant  equity interest or none at all. With respect to the CMBS Fund
Partnerships and Direct Loan Fund Partnership, we have ownership of up to 25.0%.

                                       38
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


Results by Segment
------------------

AFFORDABLE HOUSING

The table below shows  selected  information  regarding our  Affordable  Housing
activities:
<TABLE>
<CAPTION>
                                                                       For the Three Months Ended September 30,
                                                                   ------------------------------------------------
(DOLLARS IN THOUSANDS)                                                 2007             2006            % Change
---------------------------------------------------------------    -------------    -------------     -------------
<S>                                                                <C>              <C>                        <C>
                   MORTGAGE REVENUE BOND INVESTING STATISTICS

New mortgage revenue bond acquisitions                             $      99,160    $      81,969              21.0%
Funding of mortgage revenue bonds acquired in prior years                  2,000            2,450             (18.4)
                                                                   -------------    -------------     -------------
Total acquisition and funding activity                             $     101,160    $      84,419              19.8%


Mortgage revenue bonds repaid                                      $       8,099    $      27,510             (70.6)

Average portfolio balance (fair value)                             $   2,822,653    $   2,623,188               7.6%

Weighted average permanent interest rate of bonds acquired                  5.70%            5.61%
Weighted average yield of portfolio                                         5.98%            6.28%
Average borrowing rate (includes fees and effect of swaps) (1)              4.79%            4.37%
Average SIFMA rate                                                          3.70%            3.56%


                        LIHTC FUND SPONSORSHIP STATISTICS

Equity raised by LIHTC funds                                       $     132,912    $     432,801             (69.3)%
Equity invested by LIHTC funds (1)                                 $     323,009    $     388,268             (16.8)%

Mortgage revenue bond interest income (1)                          $      42,208    $      41,155               2.6%
Other interest income (1)                                                    332              206              61.2
Fee income from fund sponsorship (1)                                      26,055           35,714             (27.0)
Expense reimbursements                                                     1,285            2,147             (40.1)
Other revenues (1)                                                           405              480             (15.6)
                                                                   -------------    -------------     -------------
                                                                   $      70,285    $      79,702             (11.8)%
                                                                   =============    =============     =============

Interest expense and securitization fees (1)                       $      27,737    $      23,048              20.3%
Impairment of assets                                               $         548    $         394              39.1%
Repayments of mortgage revenue bonds and sales of other assets     $         301    $          49             514.3%

CAD (2)                                                            $      21,976    $      51,036             (56.9)
                                                                   =============    =============     =============
</TABLE>

(1)  Prior to intersegment eliminations.
(2)  See Note 16 for a description of CAD.

Mortgage Revenue Bond Investing
-------------------------------

The increase in mortgage  revenue bond  interest  income is primarily due to the
higher portfolio balance due to acquisition  activity in the past year offset by
a lower weighted average yield when analyzed against the comparable period.

While  generally  declining  yields of bonds acquired has gradually  lowered the
average  yield of our  portfolio,  we continue to earn a positive  spread on our
portfolio.  With an  increase  in the average  portfolio  balance,  our level of
securitizations  also increased  which resulted in higher  interest  expense and
securitization  fees. By entering into a fixed rate  securitization  in 2006 and
using  interest  rate swaps to fix the rate on a large  portion of our remaining
securitizations,  we believe that we have significantly  mitigated the impact on
spreads of fluctuating SIFMA rates.

                                       39
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


We  recognized  impairment  on one mortgage  revenue bond in the 2007 period and
three in the 2006 period due to the  substandard  performance  of the underlying
properties and/or revision of the interest rate of the bond.

LIHTC Fund Sponsorship
----------------------

Our LIHTC Fund sponsorship  activities  generate fees associated with sponsoring
tax-credit  equity investment funds, for assisting the funds in acquiring assets
and for providing  specified  yields to investors of certain  funds.  We receive
many of these fees at the time a fund  closes and  recognize  them over  various
periods as earned, ranging from less than one year to twenty years.

Decreased fund sponsorship revenues reflects the lower volume of equity invested
in the third  quarter of 2007 as  compared to the same period in 2006 and also a
decrease  in the fee rate  realized  stemming  from  changes in the mix of funds
originated  period  over  period.  Partially  offsetting  these  decreases  were
increased partnership  management fees that are collected at the time of closing
and  recognized  over several  years which  increased in the period due to funds
closed after the end of the 2006 quarter.

Other  ongoing fees are earned  based on the level of assets  under  management.
Despite a higher  population of funds,  those fees decreased in 2007,  primarily
attributable  to the timing of physical site visits from which we earn a portion
of the fees.  In  addition,  fees earned from older LIHTC funds  decline as they
dispose of assets.  Since  mid-2006,  the Affordable  Housing  segment no longer
provides credit  intermediation  for new funds (as credit  intermediation of new
funds is  provided by and fees are earned  directly by our Credit Risk  Products
segment).  This segment,  however,  continues to recognize fees for transactions
prior to  mid-2006  but we expect the fee stream in this  segment to continue to
decline  in  future  periods  as  amortization  ends for fees  related  to older
transactions.

Other
-----

Expense  reimbursement  and other  revenues in this segment  consist  largely of
service fees charged to entities (including consolidated partnerships) we manage
and  fluctuate  with the growth of the number of those  entities  and their cash
flows.

Affordable Housing CAD
----------------------

CAD in this segment mostly comprises the "spread income" on our mortgage revenue
bond  investments  and fee income based on fund  sponsorship  activity  which is
seasonal. CAD for the third quarter of 2007 decreased primarily due to a decline
in fee income from lower fund sponsorship and investment activity principally as
a result of a decline in  origination  activity in the quarter  attributable  to
timing and an increase in interest expense that exceeded the increased  mortgage
revenue bond interest income.  We expect that higher fund sponsorship  activity,
as normally  experienced in the fourth quarter,  will offset the effect of lower
bond origination  activity and increasing  interest rates for the balance of the
year.

                                       40
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


COMMERCIAL REAL ESTATE

The table below shows selected information  regarding our Commercial Real Estate
activities:
<TABLE>
<CAPTION>
                                                       September 30,
                                       ---------------------------------------------
(DOLLARS IN THOUSANDS)                      2007            2006          % Change
------------------------------------   -------------   -------------   -------------
<S>                                    <C>             <C>                     <C>
Primary servicing mortgage portfolio   $   8,387,257   $   8,629,523            (2.8)%
                                       -------------   -------------   -------------
Carrying value of MSRs                 $      48,796   $      59,048           (17.4)%
                                       -------------   -------------   -------------
<CAPTION>
                                          For the Three Months Ended September 30,
                                       ---------------------------------------------
                                            2007            2006          % Change
                                       -------------   -------------   -------------
<S>                                    <C>             <C>                     <C>
Mortgage originations                  $     248,681   $     444,842           (44.1)%

Mortgage origination fees (1)          $       1,436   $       2,440           (41.1)
Mortgage servicing fees                        4,484           4,764            (5.9)
Other fee income                               3,193           1,456           119.3
Other interest income (1)                      8,985           1,619           455.0
Prepayment penalties                             851           2,249           (62.2)
Other revenues                                 1,009             788            28.0
                                       -------------   -------------   -------------
  Total                                $      19,958   $      13,316            49.9%
                                       =============   =============   =============

Gain on sale of mortgages              $       3,107   $       8,240           (62.3)%
                                       =============   =============   =============

Equity income                          $      11,835   $       8,399            40.9%
                                       =============   =============   =============

CAD (2)                                $      17,797   $       9,594            85.5%
                                       =============   =============   =============
</TABLE>

(1)  Prior to intersegment eliminations.
(2)  See Note 16 for a description of CAD.


Originations
------------

The decrease in mortgage  origination  fees is  attributable  to the decrease in
originations  period  over  period.  The  lower  level  of  originations  in all
categories was due to the disruptions in the mortgage markets during the quarter
and the  tightening  of credit.  In  particular,  originations  for our  lending
program  for AMAC and  CRESS  ("Centerline  Direct")  declined  sharply  as AMAC
reduced its origination activity.

Mortgage originations for the three months ended September 30 are broken down as
follows:
<TABLE>
<CAPTION>
                                                                                             % change
(DOLLARS IN THOUSANDS)       2007         % of total           2006        % of total      2007 vs. 2006
----------------------   -------------   -------------    -------------   -------------    -------------
<S>                      <C>                     <C>      <C>                     <C>              <C>
Fannie Mae               $     116,275            46.8%   $     127,470            28.7%            (8.8)%
Freddie Mac                     87,331            35.1          125,450            28.2            (30.4)
Centerline Direct               25,339            10.2          167,850            37.7            (84.9)
Conduit and other               19,736             7.9           24,072             5.4            (18.0)
                         -------------   -------------    -------------   -------------    -------------

  Total                  $     248,681           100.0%   $     444,842           100.0%           (44.1)%
                         =============   =============    =============   =============    =============
</TABLE>


Servicing
---------

Mortgage  servicing  fees declined due to the lower primary  servicing  mortgage
portfolio  balance,  a  decrease  in the  servicing  fee  rate  and  the  higher
proportion of non-agency and non-loss sharing loans in the portfolio. This trend

                                       41
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


has also  affected  the level of MSRs,  as  write-offs  in  connection  with the
prepayment of mortgages at higher  servicing  rates are replaced with new assets
generating lower fee streams.  Generally, as our prepayments have increased, our
MSRs have decreased.

Investments
-----------

Increased  other  interest  income in this segment  reflects the  acquisition of
Investors  in  mid-2006  as  the  operations   acquired  hold   resecuritization
certificates  for  investment.  The 2007 amount reflects a full period of income
while  the  2006  results  include  only  the  period  after  acquisition.  Also
contributing to the increase over the prior period was the acquisition of $215.0
million of CMBS investments by Investors during the second quarter of 2007 which
were subsequently sold to a new CMBS Fund Partnership in August 2007.


Other
-----

The  increase  in  other  fee  income  is due to  increased  assumption  fees in
connection with a higher level of assumptions in the 2007 period.

The decrease in  prepayment  penalties  relates to a lower level of  refinancing
activity in the current quarter as compared to last year.

Gain on sale of mortgages  relates  directly to the value of MSRs  recorded when
loans are sold or servicing  contracted is  undertaken.  The MSRs, in turn,  are
valued  based  on  projected  servicing  revenues,  which  decreased  in 2007 as
compared to 2006 due to lower servicing fee rates for new  originations as noted
above.

We act as general  partner of the CMBS Fund  Partnerships  and Direct  Loan Fund
Partnership  we sponsor  and own a portion of the funds.  Equity  income in this
segment primarily represents our proportionate share of profits as well as other
allocations  for general partner  services.  This category became a part of this
segment upon the  Investors  acquisition  in August  2006.  The 2006 amount also
includes  the income from our  membership  interest in  Investors  prior to full
acquisition,  for which we recorded a loss  associated with revisions to amounts
recognized by Investors in prior periods.

Commercial Real Estate CAD
--------------------------

The increase in segment CAD is attributable to the Investors acquisition and the
addition  of  equity  and  interest  income  streams  in the  middle of the 2006
quarter.  Incremental revenues were partially offset by increased infrastructure
costs that were due to the  addition of the  Investors  business and the overall
growth of this  segment.  We  expect  that the  increased  size of the CMBS Fund
Partnerships  under  management  (and the equity  income we earn from them) will
continue to drive  increased  CAD growth in this segment but will be offset to a
degree by declining origination and servicing fee rates.


                                       42
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


ASSET MANAGEMENT

The table  below  shows  selected  information  regarding  our Asset  Management
activities:
<TABLE>
<CAPTION>
                                            September 30,
                            ----------------------------------------------
(DOLLARS IN THOUSANDS)           2007            2006          % Change
------------------------    -------------   -------------    -------------
<S>                         <C>             <C>                      <C>
Mortgage portfolio:
  Primary servicing (1)     $  27,351,380   $  17,765,131             54.0%
  Special servicing               198,151         245,313            (19.2)
Carrying value of MSRs              9,105          13,741            (33.7)
                            -------------   -------------    -------------
<CAPTION>
                                For the Three Months Ended September 30,
                            ----------------------------------------------
                                 2007            2006          % Change
                            -------------   -------------    -------------
<S>                         <C>             <C>                      <C>

Other interest income (2)   $       6,805   $       3,561             91.1%

Asset management fees (2)           3,803           4,546            (16.3)
Servicing fees (2)                  3,315           2,276             45.7
Other fees (2)                      3,297           1,241            165.7
                            -------------   -------------    -------------
  Subtotal                  $      10,415   $       8,063             29.2%
                            -------------   -------------    -------------

Other revenues (2)                    212               2               --
                            -------------   -------------    -------------
                            $      17,432   $      11,626             49.9%
                            =============   =============    =============

CAD (3)                     $      10,585   $       7,417             42.7%
                            =============   =============    =============
</TABLE>

(1) Includes sub-servicing of the Commercial Real Estate servicing portfolio and
    excludes  servicing  on mortgage  revenue  bonds in the  Affordable  Housing
    segment.
(2) Prior to  intersegment  eliminations.
(3) See Note 16 for a description of CAD.


Revenues
--------

Revenues  increased  in the 2007  period as a result of the  servicing  business
added as part of the Investors acquisition in the middle of the 2006 period. The
remaining revenues in this segment represent charges to other segments for asset
management and subservicing on the assets under management in those  businesses.
The growth in that revenue is reflective  of the overall  growth of assets under
management throughout the Company, due to the sponsorship of new LIHTC funds and
the growth of our Commercial Real Estate business,  particularly  with regard to
the  business  done with  AMAC,  CRESS and the CMBS  funds.  The  increase  also
includes  earnings from escrow  accounts  maintained  for the primary  servicing
portfolio and  increased in 2007 due to higher  balances as well as higher rates
earned.  Partially  offsetting  these  increases is the absence of an accrual of
incentive  management fees from AMAC in the 2007 period, as we do not anticipate
AMAC's  current  year  earnings  to reach  incentive  fee  payment  hurdles  (at
September 30, 2006, it was  anticipated  AMAC would reach those hurdles and thus
we recorded an accrual for these fees).

Asset Management CAD
--------------------

Segment  CAD for the 2007  period  was higher  than the same  period in 2006 due
primarily to the higher level of assets under management throughout the Company,
due in part to our acquisition of Investors.  In addition,  the  introduction of
new revenue streams upon the Investors acquisition also had a beneficial impact.
We  expect  that the  continued  expansion  of this  business  and the  expected
synergies  from combining  existing  operations  with  Investors  should benefit
segment CAD in future periods.

                                       43
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


CREDIT RISK PRODUCTS
<TABLE>
<CAPTION>
                                    For the Three Months Ended September 30,
                                 ---------------------------------------------
(DOLLARS IN THOUSANDS)                2007            2006         % Change
------------------------------   -------------   -------------   -------------
<S>                              <C>             <C>                     <C>
Credit intermediation fees (1)   $       3,113   $         970           220.9%
Other interest income (1)                  854             420           103.3
Other revenues (1)                          19              --              --
                                 -------------   -------------   -------------
                                 $       3,986   $       1,390           186.8%
                                 =============   =============   =============

CAD (2)                          $       3,741   $      (1,060)          452.9%
                                 =============   =============   =============
</TABLE>

(1)  Prior to intersegment eliminations.
(2)  See Note 16 for a description of CAD.


Revenues
--------
Fee income is related to the credit  intermediation  of  mortgage  revenue  bond
securitizations  which began in mid-2006 with the launch of Centerline Financial
and fees  associated  with credit  intermediation  of certain  LIHTC funds.  The
volume of credit  intermediation  provided to the Affordable Housing segment now
exceeds $1.4 billion. We expect these fees to continue to grow` as we expand our
bond portfolio and the  proportion of Affordable  Housing  securitizations  that
involve credit intermediation by Centerline Financial.

Interest  income in this  segment  relates to the  investment  of cash  balances
maintained by Centerline Financial.

Credit Risk Products CAD
------------------------

The  increase  in CAD  results  is due to  expansion  of  operations  since  the
inception of the business in mid-2006.  As we continue to seek  opportunities to
provide services  external to Centerline,  we expect revenues and CAD to benefit
accordingly.

CONSOLIDATED PARTNERSHIPS

The results of consolidated  partnerships  reflected in our financial statements
are for entities we control according to the definitions of FIN 46(R), and other
partnerships we control.  With respect to the LIHTC Fund  Partnerships and LIHTC
Property  Partnerships,  we  have  no  equity  interest  or,  in the  case of 37
partnerships,  an  insignificant  equity  interest.  With  respect  to CMBS Fund
Partnerships and Direct Loan Fund Partnership,  we have ownership of up to 25.0%
and also receive additional equity income allocations as manager.

     LIHTC FUND PARTNERSHIPS AND LIHTC PROPERTY PARTNERSHIPS

     Our Affordable  Housing segment earns fees from LIHTC Fund Partnerships and
     interest on mortgage  revenue bonds for which LIHTC  Property  Partnerships
     are the  obligors.  The  LIHTC  Fund  Partnerships  are tax  credit  equity
     investment funds we sponsor and manage. The LIHTC Property Partnerships are
     partnerships for which we have assumed the role of general partner.

     The increased revenue,  expense, equity loss and allocation amounts in 2007
     are due to the  addition of 14 LIHTC Fund  Partnerships  over the past year
     and the  assumption of the general  partner  interests in 19 LIHTC Property
     Partnerships.

     As third party  investors  hold  virtually  all of the equity  interests in
     these entities,  we allocate results of operations of these partnerships to
     such third party investors  except for a de minimis amount which represents
     our nominal ownership. As a result, the consolidation of these partnerships
     has an insignificant impact on our net income.

     CMBS FUND PARTNERSHIPS AND DIRECT LOAN FUND PARTNERSHIP

     CMBS Fund  Partnerships  and Direct Loan Fund  Partnership were included in
     this segment upon our  acquisition  of Investors in August 2006. The higher
     amounts of revenue and expenses  associated with these funds are due to the
     inclusion of the results in all of the third quarter of 2007 as compared to
     the post-acquisition  period in 2006. In addition,  the growth of the funds
     and  the  launching  of a third  CMBS  fund in the  third  quarter  of 2007
     contributed to the increase.

                                       44
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
---------------------------------------------

The following is a summary of our operations for the nine months ended September
30, 2007 and 2006:
<TABLE>
<CAPTION>

(DOLLARS IN THOUSANDS)                   2007        % of Revenues         2006         % of Revenues       % Change
---------------------------------   -------------    -------------     -------------    -------------    -------------
<S>                                 <C>                      <C>       <C>                     <C>             <C>
Total revenues                      $     410,580            100.0%    $     259,010           100.0%            58.5%
Total expenses                      $     464,272            113.1%    $     312,689           120.7%            48.5%
(Loss) income before income taxes   $      (3,943)            (1.0)%   $      37,385            14.4%          (110.5)%
Net income                          $         877              0.2%    $      33,476            12.9%           (97.4)%
</TABLE>


The  growth in  revenues  was due  principally  to  revenues  earned by funds we
consolidated  upon the acquisition of Investors in August 2006, and the interest
income from investments held by that business.

Total expenses in the 2007 period reflect increased  interest and infrastructure
costs due to the growth of our  businesses in the past year,  and costs incurred
by  the   consolidated   partnerships,   the   population  of  which  has  grown
significantly   with  the   acquisition   of  Investors  and  through  new  fund
sponsorships.  The 2007 period also includes significant  impairment charges and
receivable reserves associated with certain investment properties.

We recorded a loss before income taxes for the 2007 period as compared to income
in the 2006  period.  Much of the  current  year  loss  was due to:

     o    increased interest costs;
     o    significant impairment charges in the first quarter of 2007 recognized
          on mortgage  revenue bonds and a charge to reserve against  associated
          receivables;
     o    non-cash  costs stemming from the  acquisition  of Investors,  such as
          amortization  of  restricted  shares  awarded in  connection  with the
          transaction and amortization of intangible assets acquired; and
     o    severance costs associated with the departure of an executive officer.

The  2006  period  also  included  the  gain  on  termination  of  CCA  loan  of
approximately  $6.9 million while there were no corresponding  gains in the 2007
period. In addition,  the first nine months of 2006 included non-recurring costs
relating to corporate initiatives with no similar charges in the current year.

REVENUES
<TABLE>
<CAPTION>
                                                 For the Nine Months Ended September 30,
                                            -------------------------------------------------
(DOLLARS IN THOUSANDS)                           2007              2006            % Change
-------------------------------------       -------------     -------------     -------------
<S>                                         <C>               <C>                       <C>
Mortgage revenue bond interest income       $     111,977     $     114,802              (2.5)%

Other interest income                              45,922            20,001             129.6

Fee income                                         58,614            68,138             (14.0)

Other revenues:
   Expense reimbursements                           1,807             2,456             (26.4)
   Rental income of real estate owned               4,680             4,004              16.9
   Prepayment penalties                             2,908             4,691             (38.0)
   Other                                            2,741             2,570               6.7
                                            -------------     -------------     -------------
Total other revenues                               12,136            13,721             (11.6)
                                            -------------     -------------     -------------

Subtotal                                          228,649           216,662               5.5
                                            -------------     -------------     -------------

Revenues of consolidated partnerships             181,931            42,348             329.6
                                            -------------     -------------     -------------

   Total revenues                           $     410,580     $     259,010              58.5%
                                            =============     =============     =============
</TABLE>

                                       45
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


A large portion of the revenue  increase was due to the  Investors  acquisition.
Revenues  attributable to Investors are included  within other interest  income,
fee income, other revenues and revenues of consolidated partnerships.  Adjusting
to  include  Investors  in  the  2006  period,  revenues  would  have  increased
approximately 18.6%.

Mortgage revenue bond interest income and Fee income are discussed in RESULTS BY
SEGMENT below.

Other  interest   income   includes   income  from  CMBS  and   resecuritization
certificates  held in our Commercial  Real Estate segment and interest earned on
escrow balances in our Asset Management  segment.  The increase  compared to the
2006 period relates to:

     o    interest generated by CMBS and  resecuritization  certificates we hold
          through Investors (acquired in August 2006 and thus for which interest
          was earned only during part of the 2006 period); and
     o    higher cash balances  (predominantly the escrow accounts) coupled with
          higher market interest rates for temporary investments.

Partially  offsetting these increases was the absence in 2007 of interest earned
on a $20.0 million loan to CCA. That loan was repaid in September 2006 and there
is no comparable revenue in 2007.

Revenues of consolidated partnerships increased due to:

     o    an  increase  by 14 in the  number  of LIHTC  Fund  Partnerships,  one
          additional  CMBS Fund  Partnership  and  additional  fundings  made at
          existing partnerships since September 2006; and
     o    an increase by 19 in the number of LIHTC  Property  Partnerships  over
          the  past  year  which  we  have  taken  control  of  to  protect  our
          investments (see Note 18).

In  addition,  in the current  year, a full nine month's of results are included
for the CMBS Fund Partnerships and Direct Loan Fund Partnership compared to only
a partial period in 2006 (from the date of the Investors acquisition).

Results of consolidated partnerships are further discussed in RESULTS BY SEGMENT
below.

Offsetting  the  revenue  gains is the  elimination  of  revenues  earned by our
subsidiaries in transactions  primarily with LIHTC Fund  Partnerships  and LIHTC
Property  Partnerships  we have  consolidated  but in which we have virtually no
equity interest.  Although the amounts are eliminated in consolidation,  the net
losses  recognized by those  partnerships in connection with these  transactions
are absorbed by their equity partners; as such, the elimination in consolidation
has a de  minimis  impact  on our net  income.  Consolidation  of the CMBS  Fund
Partnerships  and  Direct  Loan  Fund   Partnership   result  in  equity  income
eliminations  as the  income we earn from  those  funds is in the form of equity
income. See OTHER INCOME AND INCOME ALLOCATIONS below.

In the 2007 and 2006 periods, the following revenue amounts were eliminated,  as
they represented  transactions between  consolidated  partnerships and our other
component businesses:
<TABLE>
<CAPTION>
                                               For the Nine Months Ended September 30,
                                          -------------------------------------------------
(DOLLARS IN THOUSANDS)                         2007              2006            % Change
-------------------------------------     -------------     -------------     -------------
<S>                                       <C>               <C>                        <C>
Mortgage revenue bond interest income     $      15,384     $       6,072             153.4%
Other interest income                                --               158                --
Fee income                                       38,066            37,737               0.9
Other revenues                                    4,228             4,595              (8.0)
                                          -------------     -------------     -------------

  Total                                   $      57,678     $      48,562              18.8%
                                          =============     =============     =============
</TABLE>

                                       46
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


EXPENSES
<TABLE>
<CAPTION>
                                                                      For the Nine Months Ended September 30,
                                                                 -------------------------------------------------
(IN THOUSANDS)                                                       2007              2006            % Change
----------------------------------------------------------       -------------     -------------     -------------
<S>                                                              <C>               <C>                       <C>
Interest expense                                                 $      99,723     $      67,242              48.3%
Interest expense - preferred shares of subsidiary                       14,173            14,173                --

Salaries and benefits                                                   91,460            64,782              41.2
Other general and administrative                                        53,196            51,323               3.6
                                                                 -------------     -------------     -------------
  Subtotal general and administrative                                  144,656           116,105              24.6
                                                                 -------------     -------------     -------------

Depreciation and amortization                                           34,133            33,961               0.5
Write-off of intangible assets                                              --             2,547                --
Loss on impairment of assets                                            19,933             2,665             648.0
                                                                 -------------     -------------     -------------
  Subtotal before consolidated partnerships                            312,618           236,693              32.1
                                                                 -------------     -------------     -------------

Interest expense of consolidated LIHTC Fund and Property
  Partnerships                                                          15,949            18,756             (15.0)
Interest expense of consolidated CMBS Fund and Direct Loan
  Partnerships                                                          56,137             7,182             681.6
                                                                 -------------     -------------     -------------
                                                                        72,086            25,938             177.9
                                                                 -------------     -------------     -------------

Other expenses of consolidated LIHTC Fund and Property
  Partnerships                                                          75,581            49,883              51.5
Other expenses of consolidated CMBS Fund and Direct Loan
  Partnerships                                                           3,987               175                --
                                                                 -------------     -------------     -------------
                                                                        79,568            50,058              59.0
                                                                 -------------     -------------     -------------
  Subtotal expenses of consolidated partnerships                       151,654            75,996              99.6
                                                                 -------------     -------------     -------------

  Total expenses                                                 $     464,272     $     312,689              48.5%
                                                                 =============     =============     =============
</TABLE>


The  increase in interest  expense  reflects  the higher  amount of average debt
outstanding  ($2.5 billion in the 2007 period as compared to $1.9 billion in the
comparable 2006 period). The higher balance in 2007 reflects:

     o    the cost of the Investors acquisition;
     o    continuing  capital  deployment in the Affordable  Housing segment for
          mortgage revenue bond and LIHTC investments;
     o    capital requirements of our Credit Risk Products businesses; and
     o    debt facilities of Investors used in Commercial Real Estate  investing
          and fund sponsorship activities.

In addition,  our average  borrowing rate increased to 5.29% in 2007 as compared
to 4.51% in 2006 as a result of  increases  in the SIFMA and LIBOR rates in both
years.  The effect of rate  increases  was  tempered,  however,  by a fixed rate
securitization  program in place since mid-2006 and the interest rate swaps that
we have in place,  some of which are "in the money".  Also  contributing  to the
increase  in  interest  expense  is a $6.8  million  charge  in the 2007  period
representing  the change in the fair value of three  freestanding  swaps on CMBS
investments at Investors.

While our borrowing costs have increased with market rates,  the commencement of
Centerline  Financial has enabled us to retain a  significant  portion of credit
intermediation  fees  historically  paid to third  parties  in  connection  with
securitizations  in the Affordable Housing segment.  In addition,  we anticipate
Centerline Financial will enable us to lower our average cost of capital through
more effective leverage of our assets.

The increase in salaries and benefits expense primarily relates to:

     o    a full nine months of salaries  for the  approximately  100  employees
          added upon the  Investors  acquisition  as  compared to one and a half
          months during 2006;
     o    $9.2  million of  incremental  non-cash  compensation  cost related to
          non-vested shares issued in connection with the Investors acquisition;
     o    higher non-cash  compensation costs related to non-vested share grants
          issued since September 2006;
     o    the continued growth of our component businesses; and
     o    $2.7  million  of  severance  costs,  primarily  associated  with  the
          retirement of an executive officer.

                                       47
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


Partially offsetting these increases was lower  promote-sharing  compensation in
2007 as  compared to 2006 as the prior year period  included an  unusually  high
level of promote income,  triggering a corresponding  high level of compensation
expense.

The increase in other general and  administrative  expenses  primarily  resulted
from the following:

o        higher infrastructure costs following the Investors acquisition and
o        costs incurred in relation to the Company's re-branding.

These increases were partially  offset by incremental  costs incurred during the
second quarter of 2006 related to corporate  initiatives  with no  corresponding
costs in the current year period.

Depreciation and amortization  expenses were higher in the 2007 period primarily
due to  increased  amortization  of MSRs.  In addition to $14.5  million in MSRs
acquired  as part of the  Investors  acquisition  in August  2006,  we  recorded
incremental  assets  since  September  30,  2006,  due to  mortgage  origination
activity  within our Commercial Real Estate  segment.  Partially  offsetting the
increased  amortization  were higher  expenses in 2006 related to a $3.4 million
write-off  of  deferred   costs  in  connection   with   restructuring   of  our
securitization programs.

The  write-off of  intangible  assets in 2006  represents a goodwill  impairment
charge of  approximately  $0.9  million to account  for the portion of our total
investment in and advances to a subsidiary that we did not expect to recover and
the write-off of $1.6 million in unamortized  other intangible assets recognized
at the time of its acquisition.  There were no comparable charges in the current
year period.

Impairment of assets in 2007 related to nine mortgage  revenue bonds  associated
with eight properties experiencing substandard performance and the change in our
strategy with respect to protecting  our investment in certain assets (see Notes
2 and 18).  The charge  recorded  in 2006  related to seven  bonds  experiencing
substandard  performance,  the terms for one of which we  revised  to reduce the
interest rate.

Other expenses of the  consolidated  LIHTC Fund  Partnerships and LIHTC Property
Partnerships  increased  due  to the  increase  in the  number  of  consolidated
entities  since  September 2006 (14 additional  LIHTC Fund  Partnerships  and 19
LIHTC Property Partnerships).  Virtually all of the expenses of the consolidated
LIHTC Fund  Partnerships  and LIHTC Property  Partnerships are absorbed by their
equity partners; as such, they have an insignificant impact on our net income.

Interest and Other expenses of consolidated  CMBS Fund  Partnerships  and Direct
Loan Fund  Partnership  were  incorporated  into our financial  results upon our
acquisition of Investors in August 2006.

OTHER INCOME AND INCOME ALLOCATIONS
<TABLE>
<CAPTION>
                                                             For the Nine Months Ended September 30,
                                                        -------------------------------------------------
(DOLLARS IN THOUSANDS)                                       2007              2006            % Change
---------------------------------------------------     -------------     -------------     -------------
<S>                                                     <C>               <C>                      <C>
 Equity and other income (loss)                         $         (77)    $         589            (113.1)%
                                                        =============     =============     =============
 Gain on termination of CCA loan                        $          --     $       6,916               --%
 Gain on sale or repayment of loans                             5,768             8,378             (31.2)
 Gain on sale or repayment of mortgage revenue
   bonds and other assets                                       1,228               963              27.5
                                                        -------------     -------------     -------------
                                                        $       6,996     $      16,257             (57.0)%
                                                        =============     =============     =============

 Income allocated to preferred shares of subsidiary     $      (4,669)    $      (4,669)              --%
                                                        =============     =============     =============

 Income allocated to SCUs                               $        (371)    $     (13,085)             97.2%
 Income allocated to SMUs                                          (7)             (288)             97.6
 Income allocated to SCIs                                          (6)              (29)             79.3
 Other minority interests                                        (514)              101            (608.9)
                                                        -------------     -------------     -------------
 Income allocated to minority interests in
   subsidiaries, net                                    $        (898)    $     (13,301)             93.2%
                                                        =============     =============     =============

 Loss allocated to partners of consolidated
   partnerships                                         $     260,890     $     301,263             (13.4)%
                                                        =============     =============     =============
</TABLE>

                                       48
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


Through  August 2006,  equity and other income  (loss)  included  equity  income
related  to our  common  and  preferred  interests  in  Investors  prior  to the
acquisition.  In both periods,  this amount also includes our investments in tax
advantaged  investment vehicles similar to those we sponsor (which often produce
equity  losses).  The  loss  for the  2007  period  primarily  reflects  the tax
advantaged investment vehicles, partially offset by equity income related to our
investment in AMAC which began in May 2007 (see Note 17). Equity income from our
investment  in CMBS  Fund  Partnerships  and  Direct  Loan Fund  Partnership  is
eliminated  in  consolidation  but  positively  impacts  our net income by $21.0
million in 2007  compared to $10.1  million in 2006,  which  represented  only a
partial period from the acquisition date.

Gain on termination  of CCA loan  represents the $6.0 million cash paid to us by
CCA to terminate  our rights  relating to  participating  loan and the estimated
value of the management interest in CUC that was assigned to us.

Gains  related to  mortgage  revenue  bonds and loans  fluctuate  in relation to
relative  activity  levels in the Affordable  Housing and Commercial Real Estate
businesses. See RESULTS BY SEGMENT below.

The  allocations  to  SCUs,  SMUs  and  SCIs  of  subsidiaries   represents  the
proportionate  share of  after-tax  loss or income  attributable  to  holders of
subsidiary equity as if they were all converted to common shares. Other minority
interest  principally  represents the portion of Centerline  Financial  owned by
Natixis.

The loss  allocation to partners of  consolidated  partnerships  represents  the
allocation of operating  losses of LIHTC Fund and Property  Partnerships and the
income or losses of CMBS Fund  Partnerships  and Direct Loan Fund Partnership to
outside investors that hold the majority ownership in these  partnerships.  With
respect to the LIHTC Fund Partnerships and LIHTC Property Partnerships,  we have
an  insignificant  equity interest or none at all. With respect to the CMBS Fund
Partnerships and Direct Loan Fund Partnership, we have ownership of up to 25.0%.

                                       49
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


Results by Segment
------------------

AFFORDABLE HOUSING

The table below shows  selected  information  regarding our  Affordable  Housing
activities:
<TABLE>
<CAPTION>
                                                                      For the Nine Months Ended September 30,
                                                                 -------------------------------------------------
(DOLLARS IN THOUSANDS)                                                2007              2006            % Change
-------------------------------------------------------------    -------------     -------------     -------------
<S>                                                              <C>               <C>                      <C>
                   MORTGAGE REVENUE BOND INVESTING STATISTICS

New mortgage revenue bond acquisitions                           $     148,812     $     237,349             (37.3)%
Funding of mortgage revenue bonds acquired in prior years                3,541            12,540             (71.8)
Acquisitions related to prior period forward commitments                20,880            48,396             (56.9)
                                                                 -------------     -------------     -------------
Total acquisition and funding activity                           $     173,233     $     298,285             (41.9)%

Mortgage revenue bonds repaid                                    $      10,721     $      59,492             (82.0)%

Average portfolio balance (fair value)                           $   2,777,596     $   2,523,154              10.1%

Weighted average permanent interest rate of bonds acquired                5.83%             6.01%
Weighted average yield of portfolio                                       6.11%             6.40%
Average borrowing rate (includes fees and effect of swaps) (1)            4.80%             4.19%
Average SIFMA rate                                                        3.69%             3.40%


                        LIHTC FUND SPONSORSHIP STATISTICS

Equity raised by LIHTC funds                                     $     549,499     $     801,758             (31.5)%
Equity invested by LIHTC funds (1)                               $     610,873     $     758,944             (19.5)%

Mortgage revenue bond interest income (1)                        $     127,361     $     120,874               5.4%
Other interest income (1)                                                  978             1,196             (18.2)
Fee income from fund sponsorship (1)                                    61,660            80,096             (23.0)
Expense reimbursements                                                   4,227             5,833             (27.5)
Other revenues (1)                                                         903               712              26.8
                                                                 -------------     -------------     -------------
                                                                 $     195,129     $     208,711              (6.5)%
                                                                 =============     =============     =============

Interest expense and securitization fees (1)                     $      76,644     $      59,077              29.7%
Impairment of assets                                             $      19,933     $       2,665             648.0%
Repayments of mortgage revenue bonds and sales of other assets   $         954     $         958              (0.4)%

CAD (2)                                                          $      62,779     $     111,653             (43.8)%
                                                                 =============     =============     =============
</TABLE>

(1)  Prior to intersegment eliminations.
(2)  See Note 16 for a description of CAD.


Mortgage Revenue Bond Investing
-------------------------------
The increase in mortgage  revenue bond  interest  income is primarily due to the
increased  investment  base  resulting from new bonds funded during 2006 and the
first nine months of 2007, partially offset by a lower weighted average yield of
the portfolio over the same period.

While generally declining interest rates of bonds acquired has gradually lowered
the average yield of our portfolio, we continue to earn a positive spread on our
portfolio.  With an  increase  in the average  portfolio  balance,  our level of
securitizations also increased which resulted in the higher interest expense and

                                       50
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


securitization  fees. By entering into a fixed rate  securitization  in 2006 and
using  interest  rate swaps to fix the rate on a large  portion of our remaining
securitizations,  we believe that we have significantly  mitigated the impact on
spreads of fluctuating SIFMA rates.

We recognized  impairment on nine mortgage  revenue bonds in the 2007 period and
seven in the 2006 period.  Of the 2007 charge recorded,  $15.0 million pertained
to a portfolio of property partnerships for which we assumed the general partner
interest in 2005. In the first quarter of 2007, we reassessed  our strategy with
respect to the ultimate  recovery of our  investments in these  properties.  The
strategies  to be  followed  for  individual  bonds may  involve a change in our
planned  holding  period of the asset or the level of additional  funding we may
provide,  if any. The initial  assessment of four of the mortgage  revenue bonds
caused us to recognize  impairment  due in part to the revision of the estimated
level and timing of cash flows for the  valuation  of the  properties.  See also
notes 2 and 18 to the condensed consolidated financial statements.

The  remainder  of the  2007  impairment  charge  pertained  to four  additional
properties with substandard  performance and the  restructuring of terms for one
of the associated mortgage revenue bonds.

LIHTC Fund Sponsorship
----------------------

Our LIHTC Fund sponsorship  activities  generate fees associated with sponsoring
tax-credit  equity investment funds, for assisting the funds in acquiring assets
and for providing  specified  yields to investors of certain  funds.  We receive
many of these fees at the time a fund  closes and  recognize  them over  various
periods as earned, ranging from less than one year to twenty years.

Decreased fund  sponsorship  revenues  reflect the lower volume of equity raised
and  invested in the first nine  months of 2007.  In  addition,  the mix of fund
sponsorships  served  to  decrease  the fee  realization  rate  due to a  higher
proportion  of  "multi-investor"  funds  included in equity  raised for the 2007
period.  Partially  offsetting  this  decline,  certain  ongoing  fees  (such as
partnership  management  fees  that are  collected  at the time of  closing  and
recognized over several years) increased in the period due to funds closed after
the end of the 2006 quarter.

Other  ongoing fees are earned  based on the level of assets  under  management.
Despite a higher  population of funds,  those fees decreased in 2007,  primarily
attributable  to the timing of physical site visits from which we earn a portion
of the  fees (we  expect  site  visit  fees to  recover  in the  fourth  quarter
resulting  in similar  amounts for the 2007 and 2006 years).  In addition,  fees
earned from older LIHTC funds decline as they dispose of assets.

Since  mid-2006,  the  Affordable  Housing  segment  no longer  provides  credit
intermediation for new funds (as credit  intermediation of new funds is provided
by and fees are earned  directly  by our Credit  Risk  Products  segment).  This
segment, however, continues to recognize fees for transactions prior to mid-2006
but we expect the fee stream in this  segment to  continue  to decline in future
periods as amortization ends for fees related to older transactions.

Other
-----

Expense  reimbursement  and other  revenues in this segment  consist  largely of
service fees charged to entities (including consolidated partnerships) we manage
and  fluctuate  with the growth of the number of those  entities  and their cash
flows.

Affordable Housing CAD
----------------------

CAD in this segment mostly comprises the "spread income" on our mortgage revenue
bond  investments  and fee income based on fund  sponsorship  activity  which is
seasonal.  CAD for the first nine months of 2007  decreased  primarily  due to a
decline  in fee  income  from lower fund  sponsorship  and  investment  activity
principally as a result of a decline in origination  activity in the quarter and
an increase in interest  expense that  exceeded the increased  mortgage  revenue
bond interest income. The decline in origination activity is principally related
to the timing of fund  closings in the early part of the fourth  quarter in 2007
as  contrasted  with the end of the third quarter in 2006. We expect that higher
fund sponsorship  activity,  as normally experienced in the fourth quarter, will
offset the effect of lower bond  origination  activity and  increasing  interest
rates for the balance of the year.

                                       51
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


COMMERCIAL REAL ESTATE

The table below shows selected information  regarding our Commercial Real Estate
activities:
<TABLE>
<CAPTION>
                                                                                   September 30,
                                                                 -------------------------------------------------
(DOLLARS IN THOUSANDS)                                                2007              2006            % Change
-------------------------------------------------------------    -------------     -------------     -------------
<S>                                                              <C>               <C>                      <C>
Primary servicing mortgage portfolio at September 30             $   8,387,257     $   8,629,523              (2.8)%
                                                                 -------------     -------------     -------------
Carrying value of mortgage servicing rights at September 30      $      48,796     $      59,048             (17.4)%
                                                                 -------------     -------------     -------------
<CAPTION>
                                                                      For the Nine Months Ended September 30,
                                                                 -------------------------------------------------
                                                                      2007              2006            % Change
                                                                 -------------     -------------     -------------
<S>                                                              <C>               <C>                      <C>
Mortgage originations                                            $   1,375,575     $   1,184,045              16.2%

Mortgage origination fees (1)                                    $       5,403     $       7,231             (25.3)%
Mortgage servicing fees                                                 13,672            14,889              (8.2)
Other fee income                                                         5,794             2,828             104.9
Other interest income (1)                                               19,544             6,598             196.2
Prepayment penalties                                                     2,893             4,284             (32.5)
Other revenues                                                           1,262             2,728             (53.7)
                                                                 -------------     -------------     -------------

  Total                                                          $      48,568     $      38,558              26.0%
                                                                 =============     =============     =============

Gain on sale of mortgages                                        $       6,042     $      15,299             (60.5)%
                                                                 =============     =============     =============

Equity income                                                    $      21,459     $      13,105              63.7%
                                                                 =============     =============     =============

CAD (2)                                                          $      28,293     $      14,054             101.3%
                                                                 =============     =============     =============
</TABLE>

(1) Prior to intersegment eliminations.
(2) See Note 16 for a description of CAD.


Originations
------------

As depicted in the table below, Fannie Mae originations decreased and Centerline
Direct originations increased from the prior period because our loan origination
department  focused its efforts on originating  loans for our Centerline  Direct
program.  The volume and proportion of Centerline Direct  originations  declined
beginning  in the third  quarter  of 2007 as a result of  market  conditions  as
further  described in the  discussion  of  quarterly  results and we expect this
trend may continue in future periods.

Despite an overall increase in mortgage  originations  for the period,  mortgage
origination  fees  decreased  over  the  same  period  as the  average  rate  of
origination   fees  was  impacted  by  the  higher   proportion   of  non-agency
originations   (generally  resulting  in  lower  originations  fee)  and  spread
compression in the market.

Mortgage  originations for the nine months ended September 30 are broken down in
the table below:
<TABLE>
<CAPTION>
                                                                                             % change
(DOLLARS IN THOUSANDS)         2007         % of total          2006        % of total      2007 vs. 2006
----------------------    -------------   -------------    -------------   -------------    -------------
<S>                       <C>                     <C>      <C>                     <C>              <C>
Fannie Mae                $     372,548            27.1%   $     550,254            46.5%           (32.3)%
Freddie Mac                     265,110            19.3          215,465            18.2             23.0
Centerline Direct               657,611            47.8          319,050            26.9            106.1
Conduit and other                80,306             5.8           99,276             8.4            (19.1)
                          -------------   -------------    -------------   -------------    -------------

  Total                   $   1,375,575           100.0%   $   1,184,045           100.0%            16.2%
                          =============   =============    =============   =============    =============
</TABLE>

                                       52
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


Servicing
---------

Mortgage  servicing  fees  declined due to a lower  primary  servicing  mortgage
portfolio,  a decrease in the  servicing  fee rate and the higher  proportion of
non-agency  and non-loss  sharing  loans in the  portfolio.  This trend has also
affected the level of MSRs, as write-offs in connection  with the  prepayment of
mortgages  at higher  servicing  rates are replaced  with new assets  generating
lower fee streams.  Generally, as our prepayments have increased,  our MSRs have
decreased.

Investments
-----------

Increased  interest income in this segment reflects the acquisition of Investors
in  August  2006 as the  operations  acquired  hold  CMBS  and  resecuritization
certificates  for  investment.  The 2007 amount reflects a full period of income
while  the  2006  results  include  only  the  period  after  acquisition.  Also
contributing to the increase over the prior period was the acquisition of $215.0
million of CMBS investments by Investors during the second quarter of 2007 which
were subsequently sold to a new CMBS Fund Partnership in August 2007.

Other
-----

The  increase  in  other  fee  income  is due to  increased  assumption  fees in
connection  with a higher level of  assumptions  in the 2007 period.  The higher
level of  assumptions  in the 2007 period is partially due to a full nine months
of Investors  results in the 2007 period  compared to only one and a half months
in the 2006 period.

The decrease in  prepayment  penalties  relates to a lower level of  refinancing
activity in the current year as compared to last year.

Gain on sale of mortgages  relates  directly to the value of MSRs  recorded when
loans are sold.  The MSRs,  in turn,  are valued  based on  projected  servicing
revenues, which decreased in 2007 as compared to 2006 due to lower servicing fee
rates for new originations as noted above.

We act as general  partner of the CMBS Fund  Partnerships  and Direct  Loan Fund
Partnership we sponsor and we own a portion of the funds.  Equity income in this
segment primarily represents our proportionate share of profits as well as other
allocations  for general partner  services.  This category became a part of this
segment  upon the  Investors  acquisition  while the 2006 amount  also  includes
income from our membership interest in Investors prior to acquisition.

Commercial Real Estate CAD
--------------------------

The increase in segment CAD is attributable to the Investors acquisition and the
addition  of equity and  interest  income  streams in August  2006.  Incremental
revenues were partially offset by increased  infrastructure  costs that were due
to the  addition  of the  Investors  business  and the  overall  growth  of this
segment.  Also partially offsetting the gains was the gain on the termination of
the CCA loan realized in 2006 for which there was no comparable  amount in 2007.
We expect that the continuing growth of CMBS Fund Partnerships  under management
(and the equity income we earn from them) will  continue to drive  increased CAD
growth in this segment but will be offset to a degree by  declining  origination
and servicing fee rates.

                                       53
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


ASSET MANAGEMENT

The table  below  shows  selected  information  regarding  our Asset  Management
activities:
<TABLE>
<CAPTION>
                                                  September 30,
                                 -----------------------------------------------
(DOLLAR IN THOUSANDS)                2007             2006            % Change
-----------------------------    -------------   -------------     -------------
<S>                              <C>             <C>                       <C>
Mortgage portfolio:
  Primary servicing (1)          $  27,351,380   $  17,765,131              54.0%
  Special servicing                    198,151         245,313             (19.2)
Carrying value of MSRs                   9,105          13,741             (33.7)
                                 -------------   -------------     -------------
<CAPTION>
                                     For the Nine Months Ended September 30,
                                 -----------------------------------------------
                                     2007             2006            % Change
                                 -------------   -------------     -------------
<S>                              <C>             <C>                       <C>
Other interest income (2)        $      18,612   $       7,869             136.5%

Asset management fees (2)               10,833           9,996               8.4
Servicing fees (2)                       9,027           5,607              61.0
Other fees (2)                           7,483           1,241             503.0
                                 -------------   -------------     -------------
  Subtotal                       $      27,343   $      16,844              62.3%
                                 -------------   -------------     -------------

Other revenues (2)                         628               2                --
                                 -------------   -------------     -------------
                                 $      46,583   $      24,715              88.5%
                                 =============   =============     =============

CAD (3)                          $      24,627   $      13,871              77.5%
                                 =============   =============     =============
</TABLE>

(1)  Includes  sub-servicing of the Commercial Real Estate servicing  portfolio.
     Excludes  servicing on mortgage  revenue  bonds in the  Affordable  Housing
     segment.
(2)  Prior to  intersegment  eliminations.
(3)  See Note 16 for a description of CAD.


Revenues
--------

Revenues  increased  in the 2007  period as a result of the  servicing  business
added as part of the  Investors  acquisition.  The  remaining  revenues  in this
segment   represent   charges  to  other  segments  for  asset   management  and
subservicing on the assets under management in those  businesses.  The growth in
the  segment  revenue  is  reflective  of the  overall  growth of  assets  under
management throughout the Company, due to the sponsorship of new LIHTC funds and
the growth of our Commercial  Real Estate segment,  particularly  with regard to
the  business  done with  AMAC,  CRESS and the CMBS  funds.  The  increase  also
includes  earnings from escrow  accounts  maintained  for the primary  servicing
portfolio and  increased in 2007 due to higher  balances as well as higher rates
earned.  Partially  offsetting  the  increases  is the  absence of an accrual of
incentive  management fees from AMAC in the 2007 period, as we do not anticipate
AMAC's  current  year  earnings  to reach  incentive  fee  payment  hurdles  (at
September 30, 2006, it was  anticipated  AMAC would reach those hurdles and thus
we recorded an accrual for these fees).

Asset Management CAD
--------------------

Segment  CAD for the 2007  period  was higher  than the same  period in 2006 due
primarily to the higher level of assets under management throughout the Company,
due in part to our acquisition of Investors.  In addition,  the  introduction of
new revenue streams upon the Investors acquisition also had a beneficial impact.
The  increase  was  partially  offset by a higher  level of  salaries  and other
infrastructure costs required to grow the business. We expect that the continued
expansion of this business and the expected  synergies from  combining  existing
operations with Investors should benefit segment CAD in future periods.

                                       54
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


CREDIT RISK PRODUCTS
<TABLE>
<CAPTION>
                                     For the Nine Months Ended September 30,
                                 -----------------------------------------------
(DOLLAR IN THOUSANDS)                2007             2006            % Change
-----------------------------    -------------   -------------     -------------
<S>                              <C>             <C>                       <C>
Credit intermediation fees (1)   $       8,498   $         970             776.1%
Other interest income (1)                2,912             430             577.2
Other revenues (1)                         129              --                --
                                 -------------   -------------     -------------
                                 $      11,539   $       1,400             724.2%
                                 =============   =============     =============

CAD (2)                          $      11,806   $      (5,364)            320.1%
                                 =============   =============     =============
</TABLE>

(1)  Prior to intersegment eliminations.
(2)  See Note 16 for a description of CAD.


Revenues
--------

Fee income is related to the credit  intermediation  of  mortgage  revenue  bond
securitizations  which began in mid-2006 with the launch of Centerline Financial
and fees  associated  with credit  intermediation  of certain  LIHTC funds.  The
volume of credit  intermediation  provided to the Affordable Housing segment now
exceeds $1.4 billion.  We expect these fees to continue growing as we expand our
bond portfolio and the  proportion of Affordable  Housing  securitizations  that
involve credit intermediation by Centerline Financial.

Interest  income in this  segment  relates to the  investment  of cash  balances
maintained by Centerline Financial.

Credit Risk Products CAD
------------------------

The negative CAD in this  segment for 2006  relates to start-up  costs  incurred
prior to the launch of Centerline  Financial.  The positive 2007 CAD results are
entirely due to the inception of the business in mid-2006 and the absence of the
non-recurring  start-up costs. As we continue to seek  opportunities  to provide
services  external  to  Centerline,  we  expect  revenues  and  CAD  to  benefit
accordingly.

CONSOLIDATED PARTNERSHIPS

The results of consolidated  partnerships  reflected in our financial statements
are for entities we control according to the definitions of FIN 46(R), and other
partnerships we control.  With respect to the LIHTC Fund  Partnerships and LIHTC
Property  Partnerships,  we  have  no  equity  interest  or,  in the  case of 37
partnerships,  an  insignificant  equity  interest.  With  respect  to CMBS Fund
Partnerships and Direct Loan Fund Partnership,  we have ownership of up to 25.0%
and also receive additional equity income allocations as manager.

     LIHTC FUND PARTNERSHIPS AND LIHTC PROPERTY PARTNERSHIPS

     Our Affordable  Housing segment earns fees from LIHTC Fund Partnerships and
     interest on mortgage  revenue bonds for which LIHTC  Property  Partnerships
     are the  obligors.  The  LIHTC  Fund  Partnerships  are tax  credit  equity
     investment funds we sponsor and manage. The LIHTC Property Partnerships are
     partnerships for which we have assumed the role of general partner.

     The increased revenue,  expense, equity loss and allocation amounts in 2007
     are due to the  addition of 14 LIHTC Fund  Partnerships  over the past year
     and the  assumption of the general  partner  interests in 19 LIHTC Property
     Partnerships.

     As third party  investors  hold  virtually  all of the equity  interests in
     these entities,  we allocate results of operations of these partnerships to
     those  partners  except for de minimis  amounts that  represent our nominal
     ownership.  As a result,  the  consolidation  of these  partnerships has an
     insignificant impact on our net income.

     CMBS FUND PARTNERSHIPS AND DIRECT LOAN FUND PARTNERSHIP

     CMBS Fund  Partnerships  and Direct Loan Fund  Partnership were included in
     this segment upon our  acquisition  of Investors in August 2006. The higher
     amounts of revenue and expenses  associated with these funds are due to the
     inclusion  of the  results  in all of the 2007  period as  compared  to the
     post-acquisition  period in 2006. In addition,  the growth of the funds and
     the launching of a third CMBS fund in the third quarter of 2007 contributed
     to the increases.

                                       55
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


INCOME TAXES
------------

A large majority of our pre-tax income is derived from the mortgage revenue bond
investing  within  our  Affordable  Housing  segment  and CMBS fund  sponsorship
activities in our Commercial Real Estate segment. The subsidiaries through which
we conduct  these  activities  are  structured  as  flow-through  entities  and,
generally,  their income is not subject to income taxes.  Our other  businesses,
however,  are conducted in corporations and are subject to income taxes. Because
the distributions paid on the minority interests in these corporate subsidiaries
effectively  provide a tax  deduction,  as well as other  factors  within  these
businesses, they often have losses for book purposes.

We provide for income taxes for these corporate  subsidiaries in accordance with
SFAS No. 109,  ACCOUNTING  FOR INCOME TAXES ("SFAS No. 109") which  requires the
recognition of deferred tax assets and  liabilities  for the expected future tax
consequences of temporary  differences  between the financial statement carrying
amounts and the tax bases of assets and liabilities.

The Company  recognized an income tax benefit in the nine months ended September
30, 2007 and a provision in the comparable  2006 period.  The effective tax rate
on a  consolidated  basis for the nine months ended  September 30, 2007 and 2006
was 122.2% and  (10.5)%,  respectively.  The  effective  rate for our  corporate
subsidiaries that were subject to taxes was 8.0% and (20.5)% for the nine months
ended September 30, 2007 and 2006, respectively.

For all periods,  our effective tax rate on a consolidated  basis as well as for
our taxable  subsidiaries  was favorably  impacted by tax exempt interest earned
and  distributions  to  minority  shareholders  and  negatively  impacted by the
valuation allowance on net deferred tax assets as discussed below.

The income tax  provision or benefit is affected by the book income or losses of
the taxable  businesses and tax  deductible  distributions  on their  subsidiary
equity.  Management determined that, in light of projected taxable losses in the
corporate  subsidiaries  for the  foreseeable  future,  all of the  deferred tax
assets will  likely not be realized  and hence a full  valuation  allowance  was
provided.  As the proportion of our pre-tax income contributed by the businesses
generating  taxable  income and losses  changes,  the  resulting  tax benefit or
provision  may appear  incongruous  with our  consolidated  income before income
taxes.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

We fund our short-term  business needs  (including  investments)  primarily with
cash provided by  operations,  securitization  of  investments  and revolving or
warehouse  credit  facilities.  Our primary sources of capital to meet long-term
liquidity needs  (including  acquisitions)  are debt and various types of equity
offerings,  including equity of our subsidiaries.  We believe that our financing
capacity  and  cash  flow  from  current  operations  are  adequate  to meet our
immediate and long term liquidity requirements.  Nonetheless,  as business needs
warrant, we may issue other types of debt or equity in the future.

Recent Market Events
--------------------

During and subsequent to the third quarter of 2007,  developments  in the market
for many types of mortgage products (including mortgage-backed  securities) have
resulted in reduced  liquidity  for these  assets.  Although  this  reduction in
liquidity  has been most acute with regard to  single-family  subprime  mortgage
assets,  to which we are not  exposed,  there has been an overall  reduction  in
liquidity  across the credit  spectrum of mortgage  products.  The impact on the
financial results has been included, where appropriate, in our discussion of the
results of  operations  for the third  quarter of 2007.  See also Note 19 to our
Condensed Consolidated Financial Statements.

Management  believes we are able to manage our operations  such that we are able
to limit the impact to our liquidity as a result of recent events.  Furthermore,
our current  financing  sources and cash flows from  operations  are adequate to
meet our  ongoing  liquidity  needs for the near  term.  We also note that as of
October 30, 2007 Standard & Poor's rated our credit  quality as BB with a stable
outlook.

Debt and Securitizations
------------------------

Short-term liquidity provided by operations comes primarily from interest income
from  investments  we hold in excess of the  related  financing  costs,  and fee
income  receipts.  We typically  generate  funds for  investment  purposes  from
corresponding financing activities.

We have the following debt and  securitization  facilities  that provide us with
short-term and long-term liquidity:

     o    a warehouse facility with a capacity of $250.0 million as of September
          30, 2007, used for mortgage banking needs, which matures in May 2008;


                                       56
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


     o    a revolving  credit  facility with a capacity of $320.0  million as of
          September  30,  2007,  used to acquire  equity  interests  in property
          ownership  entities  prior to the inclusion of these equity  interests
          into investment funds, as well as for other corporate purposes,  which
          matures in August 2009.  We expect  further  lender  commitments  that
          would raise the capacity of this facility to $375.0 million;
     o    securitizations  through the Merrill Lynch P-FLOATs/RITES  program and
          through  the  Goldman  Sachs  Floats/Residuals  program of a specified
          percentage  of the fair value of mortgage  revenue bonds not otherwise
          securitized or pledged as collateral; and
     o    repurchase  facilities  used to fund  investments by Investors and its
          subsidiaries as well as for general business purposes.

As of September 30, 2007, we had $283.9 million  available to borrow under these
debt and  securitization  facilities  without  exceeding  limits imposed by debt
covenants  and our by-laws  and  without  pledging  additional  collateral.  Our
repurchase facilities provide us with liquidity based on specified advance rates
and the fair value of  collateral  assets.  Although we (and the funds we manage
and consolidate) may experience  margin calls in the ordinary course of business
due to fluctuations in those fair values,  as of the date of this filing we have
not experienced any  significant  margin calls despite recent  turbulence in the
real estate finance markets.

In addition to the credit  facilities  detailed  above, we have a $453.0 million
fixed-rate mortgage revenue bond securitization  program and $250.0 million term
loan,  both of which  began in 2006 and were fully  funded as of  September  30,
2007. The securitization  certificates have a weighted average remaining term of
6.8 years and the term loan matures in 2012.

Equity
------

We have the  ability  to issue  $400.0  million  of  equity  or debt  securities
pursuant  to a shelf  registration  statement  we have on file with the SEC.  We
currently  have no plans to issue any such  securities  under this  registration
statement.  In  addition,  we have in the  past,  and may in the  future,  issue
securities in private  placements,  including,  without  limitation,  additional
issuances similar to our CRA Preferred Shares and 4.4% CRA Preferred Shares.

Liquidity Requirements after September 30, 2007
-----------------------------------------------

During November 2007, equity distributions will be paid as follows:
<TABLE>
<CAPTION>
                                                               (IN THOUSANDS)
                                                               -------------
<S>                                                            <C>
                                                               $      24,796
Common/CRA shareholders
SCU/SMU/SCI holders                                                    8,806
4.4% CRA Preferred shareholders                                        1,188
Preferred shareholders of a subsidiary                                 6,281
                                                               -------------

  Total                                                        $      41,071
                                                               =============
</TABLE>


We participate as co-investor in the CMBS Fund Partnerships and Direct Loan Fund
Partnership we sponsor and other funds we manage.  As of September 30, 2007, our
remaining  unfunded capital  commitments were $13.3 million,  which we expect to
fund within the next twelve months.

Management is not aware of any trends or events,  commitments or  uncertainties,
which  have not  otherwise  been  disclosed  that  will or are  likely to impact
liquidity in a material way.

                                       57
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


Summary of Cash Flows
---------------------
<TABLE>
<CAPTION>
                                                                  Nine Months Ended
                                                                     September 30,
                                            ----------------------------------------------------------------
                                                                                 Dollar           Percent
(DOLLARS IN THOUSANDS)                          2007             2006            Change           Change
-----------------------------------------   -------------    -------------    -------------    -------------
<S>                                         <C>              <C>              <C>                     <C>
Cash flows provided by (used in):
   Operating activities                     $     198,389    $     197,787    $         602              0.3%
   Investing activities                          (251,949)        (445,923)         193,974             43.5
   Financing activities                             3,198          229,081         (225,883)           (98.6)
                                            -------------    -------------    -------------    -------------
Net increase in cash and cash equivalents   $     (50,362)   $     (19,055)   $     (31,307)          (164.3)%
                                            =============    =============    =============    =============
</TABLE>

For the nine months ended September 30, 2007, there was a larger net decrease in
cash and cash  equivalents  as compared to the  comparable  2006 period.  Higher
operating and investing  cash flows were more than offset by lower cash provided
by financing activities.

Operating  cash flows in the 2007  period  includes a large  positive  change in
receivables  over  the  prior  period  due to  collection  of  receivables  from
partnerships in the current period. This was partially offset by:

     o    lower net income in 2007
     o    lower cash inflows  related to mortgage loan sale  settlements;  and
     o    significantly   higher   non-cash  costs  in  2007  due  primarily  to
          impairment charges and bad debt reserves.

Cash used in investing activities was significantly lower in 2007 as compared to
2006 primarily due to our acquisition of Investors in the 2006 period as well as
a higher level of mortgage revenue bond acquisitions in 2006. These factors were
partially offset by:

     o    a higher level of net investment in Affordable  Housing property level
          partnerships for sponsored funds in the current period; and
     o    a lower level of mortgage revenue bond repayments.

Cash provided by financing activities in the 2007 period were lower than in 2006
due to more borrowings in 2006 primarily related to money borrowed in connection
with our acquisition of Investors.

Commitments, Contingencies and Off-Balance Sheet Arrangements
-------------------------------------------------------------

Note 18 to the condensed consolidated financial statements contains a summary of
our guarantees and off-balance sheet arrangements.

                                       58
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


The  following  table  reflects our maximum  exposure and carrying  amount as of
September 30, 2007, for guarantees we and our subsidiaries have entered into and
other contingent liabilities:
<TABLE>
<CAPTION>
                                                   Maximum         Carrying
(IN THOUSANDS)                                     Exposure         Amount
---------------------------------------------   -------------   -------------
<S>                                             <C>             <C>
Development deficit guarantees (1)              $      43,521   $         455
Operating deficit guarantees (1)                        7,567             133
ACC transition guarantees (1)                           3,245              --
Recapture guarantees (1)                              114,746             133
Replacement reserve (1)                                 3,132              38
Guarantee of payment (1)                               19,620              --
LIHTC credit intermediation (2)                     1,305,105          35,521
Mortgage banking loss sharing agreements (3)          836,602          13,116
Centerline Financial credit default swaps (4)          19,815           1,263
                                                -------------   -------------

                                                $   2,353,353   $      50,659
                                                =============   =============
</TABLE>

(1) Generally   relate  to  business   requirements  for  developers  to  obtain
    construction  financing.  As part of our  role as  co-developer  of  certain
    properties,  we issue  these  guarantees  in order to secure  properties  as
    assets for the funds we manage.  To date,  we have had  minimal  exposure to
    losses  under  these   guarantees  and  anticipate  no  material   liquidity
    requirements in satisfaction  of any guarantee  issued.  The carrying values
    disclosed  above relate to the fees we earn for the  transactions,  which we
    recognize as the fair values.

(2) We see these  transactions as opportunities to expand our Affordable Housing
    business by offering broad capital solutions to customers.  To date, we have
    had  minimal  exposure  to  losses  and  anticipate  no  material  liquidity
    requirements  in  satisfaction  of  any  arrangement.  The  carrying  values
    disclosed  above relate to the fees we earn for the  transactions,  which we
    recognize as the fair values.

(3) The loss  sharing  agreements  with  Fannie Mae and Freddie Mac are a normal
    part of the DUS and DUIP lender  programs  and afford a higher level of fees
    than we earn for  other  comparable  funding  sources.  The  carrying  value
    disclosed above is our estimate of potential  exposure under the guarantees,
    although  any  funding  requirements  for  such  exposure  is  based  on the
    contractual  requirements of the underlying  loans we sell to Fannie Mae and
    Freddie  Mac,  which vary as to amount and  duration,  up to a maximum of 30
    years.

(4) We see these  transactions  as  opportunities  to  expand  our  Credit  Risk
    Products business by offering broad capital solutions to customers. To date,
    we have had minimal exposure to losses and anticipate no material  liquidity
    requirements  in  satisfaction  of  any  arrangement.  The  carrying  values
    disclosed  above relate to the fees we earn for the  transactions,  which we
    recognize as their fair values.


The maximum  exposure  amount is not indicative of our expected losses under the
guarantees.

                                       59
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


CONTRACTUAL OBLIGATIONS

The following  table provides our  commitments as of September 30, 2007, to make
future payments under our debt agreements and other contractual obligations:
<TABLE>
<CAPTION>
                                                                   Payments due by period
                                      ---------------------------------------------------------------------------------
                                                         Less than                                          More than
(IN THOUSANDS)                            Total            1 year         1-3 years        3-5 years         5 years
-----------------------------------   -------------    -------------    -------------    -------------    -------------
<S>                                   <C>              <C>               <C>              <C>              <C>
Financing arrangements (1)(2)         $   1,900,820    $   1,900,820     $         --     $         --     $         --
Notes payable (1)(2)                        640,948          126,948          274,000            5,000          235,000
Notes payable of consolidated
  partnerships (3)                          488,817          211,643          115,756           22,181          139,237
Financing arrangements of
  consolidated partnerships               1,128,813            5,927            8,271          212,264          902,351
Repurchase agreements of
  consolidated partnerships                 414,961          414,961               --               --               --
Operating lease obligations                  72,951            8,912           16,827           14,266           32,946
Subleases                                    (7,091)          (1,335)          (2,497)          (2,628)            (631)
Unfunded investment commitments (4)         299,154          140,126          159,028               --               --
Preferred shares of subsidiary
  (subject to mandatory repurchase)         273,500               --               --               --          273,500
                                      -------------    -------------    -------------    -------------    -------------

  Total                               $   5,212,873    $   2,808,002    $     571,385    $     251,083    $   1,582,403
                                      =============    =============    =============    =============    =============
</TABLE>

(1)  The amounts included in each category reflect the current expiration, reset
     or renewal date of each facility or security  certificate.  Management  has
     the intent and believes it has the ability to renew,  refinance or remarket
     the borrowings beyond their current due dates.
(2)  Recourse  debt  represents  principal  amount only.  The  weighted  average
     interest rate at period end, including the impact of swaps, was 5.04%.
(3)  Of the notes payable of consolidated partnerships, $253.9 million relate to
     equity  subscriptions  and are guaranteed by certain equity partners of the
     investment funds. Per partnership agreements,  the equity partners are also
     obligated to pay the  principal  and interest on the notes.  The  remaining
     balance of $153.8 million is collateralized with the underlying  properties
     of  the  consolidated   operating   partnerships.   All  of  this  debt  is
     non-recourse to us.
(4)  Of  this  amount,  $279.9  million  represents  mortgage  loan  origination
     commitments with corresponding sale commitments.


As we are unable to project the timing of any  payments  related to tax reserves
(see Notes 8 and 10), no such payments are included in the table above.

Forward-Looking Statements
--------------------------

Certain   statements  made  in  this  report  may  constitute   "forward-looking
statements"  within the meaning of Section 27A of the Securities Act of 1933, as
amended,  and Section 21E of the  Securities  Exchange Act of 1934,  as amended.
These  forward-looking  statements  are not  historical  facts,  but  rather our
beliefs and expectations and are based on our current estimates, projections and
assumptions  about  our  Company  and  industry.  Words  such as  "anticipates,"
"expects,"  "intends,"  "plans,"  "believes,"  "seeks,"  "estimates" and similar
expressions  are  intended  to  identify   forward-looking   statements.   These
statements  are not guarantees of future  performance  and are subject to risks,
uncertainties  and other  factors,  some of which are  beyond our  control,  are
difficult to predict and could cause actual  results to differ  materially  from
those expressed or forecasted in the forward-looking  statements.  Some of these
risks include, among other things:

     o    adverse changes in real estate markets;
     o    competition with other companies;
     o    interest rate fluctuations;
     o    general economic and business conditions;
     o    environmental/safety requirements;
     o    changes in applicable laws and regulations;
     o    our tax treatment,  the tax treatment of our  subsidiaries and the tax
          treatment of our investments;

                                       60
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (CONTINUED)


     o    risk of default  associated with the mortgage  revenue bonds and other
          securities held by us or our subsidiaries;
     o    risks associated with providing credit intermediation;
     o    risk of loss under mortgage loan loss sharing agreements;
     o    risk of loss from direct and indirect investments in CMBS;
     o    the risk that  relationships with key investors and developers may not
          continue;
     o    our ability to generate fee income may not continue; and
     o    risks related to the form and structure of our financing arrangements.

These  risks  are  more  fully  described  in our Form  10-K for the year  ended
December 31, 2006 and in Part II, Item 1A. of this report. We caution you not to
place undue reliance on these forward-looking statements, which reflect our view
only  as of  the  date  of  this  report.  Centerline  expressly  disclaims  any
obligation or  undertaking  to release  publicly any updates or revisions to any
forward-looking   statements   contained   herein  to  reflect   any  change  in
Centerline's  expectations with regard thereto or change in events,  conditions,
or circumstances on which any such statement is based.

                                       61
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We invest in certain financial instruments, primarily mortgage revenue bonds and
other bond related investments that are subject to various forms of market risk,
including  interest  rate risk.  We seek to prudently  and actively  manage such
risks to earn  sufficient  compensation to justify the undertaking of such risks
and to  maintain  capital  levels  which  are  commensurate  with  the  risks we
undertake.

The  assumptions  related to the  following  discussion  of market risk  involve
judgments   regarding  future  economic  market  conditions,   future  corporate
decisions and other interrelating  factors, many of which are beyond our control
and all of which are difficult or  impossible to predict with precise  accuracy.
Although  we  believe  that  the  assumptions   underlying  the  forward-looking
information  are  reasonable,  any of the  assumptions  could be inaccurate and,
therefore,  there  can be no  assurance  that  the  forward-looking  information
included herein will prove to be accurate. Due to the significant  uncertainties
inherent in  forward-looking  information,  the  inclusion  of such  information
should not be regarded as our representation that our objectives and plans would
be achieved.

INTEREST RATE RISK
------------------

The nature of our  investments  and the  instruments  used to raise  capital for
their acquisition expose us to income and expense volatility due to fluctuations
in market  interest rates.  Market  interest rates are highly  sensitive to many
factors,  including governmental  policies,  domestic and international economic
and  political  considerations  and other factors  beyond our control.  A rising
interest rate environment could reduce the demand for multifamily tax-exempt and
taxable  financing,  which could limit our ability to invest in mortgage revenue
bonds or to  structure  transactions.  Conversely,  falling  interest  rates may
prompt historical renters to become homebuyers, in turn potentially reducing the
demand for multifamily housing.

Our exposure to interest rate is twofold:

     o    the impact of variable interest rates on our earnings; and
     o    the  impact of  interest  rates in  determining  the fair value of our
          assets.

IMPACT ON EARNINGS

Our  investments  in mortgage  revenue  bonds  generally  bear interest at fixed
rates, or pay interest according to the cash flows of the underlying properties,
which do not fluctuate with changes in market interest rates.

In contrast,  payments required under our variable-rate  securitization programs
fluctuate  with  market  interest  rates based on the SIFMA index and are re-set
weekly or every 35 days. In addition,  we have variable-rate debt related to our
credit and  warehouse  facilities,  with rates based on LIBOR.  Other  long-term
sources of capital,  such as our preferred shares of our subsidiary and our 4.4%
Convertible CRA preferred  shares,  carry a fixed dividend rate and as such, are
not impacted by changes in market interest rates.

Of the  September  30,  2007,  total  amount of our  liabilities  labeled on our
Condensed  Consolidated  Balance  Sheet as "Financing  Arrangements"  and "Notes
Payable",  $1.4 billion is variable  rate debt and not hedged via interest  rate
swap agreements. We also have large escrow balances maintained by our Commercial
Real  Estate  business  and we are  entitled  to the  interest  earned  on those
balances.  A 1.0%  increase in interest  rates would  therefore  result in a net
decrease of our pre-tax income by approximately $12.2 million.

We manage  interest rate risk through the use of interest rate swaps and forward
bond  origination  commitments,  as  described  in the  notes  to our  condensed
consolidated  financial  statements.  In  addition,  we manage our  exposure  by
striving  for  diversification  in our  businesses,  including  analysis  of our
susceptibility to interest rate changes, and by managing our leverage.

IMPACT ON VALUATION OF ASSETS

Changes in market  interest  rates would also impact the estimated fair value of
our portfolio of mortgage revenue bonds and  resecuritization  certificates.  We
estimate  the fair  value  for each  revenue  bond as the  present  value of its
expected  cash  flows,   using  a  discount  rate  for   comparable   tax-exempt
investments.  Therefore,  as market  interest rates for  tax-exempt  investments
increase,   the  estimated  fair  value  of  our  mortgage   revenue  bonds  and
resecuritization  certificates will generally decline, and a decline in interest
rates would be expected to result in an increase in their estimated fair values.
For example, we estimate that, using the same methodologies used to estimate the
portfolio  fair value,  a 1% increase in market rates would reduce the estimated
fair value of our  portfolio  of  mortgage  revenue  bonds and  resecuritization
certificates by  approximately  $141.2 million and a 1% decrease would result in
an increase of approximately $157.9 million. Changes in the estimated fair value
of the mortgage  revenue bonds and  resecuritization  certificates do not impact
our reported net income, net income per share,  dividends or cash flows, but are
reported as  components of  accumulated  other  comprehensive  income and affect
reported  shareholders'  equity, and may affect our borrowing  capability to the
extent that collateral requirements are sometimes based on our asset values.

                                       62
<PAGE>

ITEM 4.  CONTROLS AND PROCEDURES.

(a)      EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

         Our Chief Executive  Officer and Chief Financial Officer have evaluated
         the effectiveness of our disclosure controls and procedures (as defined
         in Rule 13a-15(e) or Rule  15a-15(e) of the Securities  Exchange Act of
         1934,  as  amended  (the  "Exchange  Act")) as of the end of the period
         covered  by this  quarterly  report.  Based  on such  evaluation,  such
         officers have concluded that our disclosure  controls and procedures as
         of the  end  of the  period  covered  by  this  quarterly  report  were
         effective to ensure that information  required to be disclosed by us in
         the reports  that we file or submit under the Exchange Act is recorded,
         processed, summarized and reported within the time periods specified in
         the SEC  rules  and  forms,  and to ensure  that  such  information  is
         accumulated and  communicated  to our  management,  including the Chief
         Executive Officer and Chief Financial Officer, as appropriate, to allow
         timely  decisions  regarding  required  disclosure.  us and  our  joint
         venture  partners may negatively  impact the benefits to be achieved by
         the joint venture.

(b)      INTERNAL CONTROL OVER FINANCIAL REPORTING

         There were no changes in our internal control over financial  reporting
         (as defined in Rules  13a-15(f) and  15d-15(f)  under the Exchange Act)
         that occurred  during the quarter ended  September 30, 2007,  that have
         materially affected, or are reasonably likely to materially affect, our
         internal control over financial reporting.

                                       63
<PAGE>

                           PART II - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS.

         Claims have been asserted  against  subsidiaries  of the Company in two
         separate but interrelated lawsuits:

               o    Silverwood  Alliance  Apartments,  LLC, et al. v. Affordable
                    Housing  Partnership  Alliance  LLC, et al.  (instituted  in
                    Pierce County  Superior  Court in the State of Washington in
                    July 2005); and
               o    Viewcrest   Bremerton   LLC  v.  Related   Capital   Housing
                    Partnership I, L.P. - Series 3, et al. (instituted in Pierce
                    County  Superior  Court in the State of  Washington  in June
                    2006).

         These lawsuits relate to two properties for which we have provided debt
         and equity financing, but are associated with the same developers.  The
         lawsuits allege, among other things, (i) breach of fiduciary duty; (ii)
         breach of the implied  covenant of good faith and fair  dealing;  (iii)
         intentional   misrepresentation,   fraud  and  deceit;  (iv)  negligent
         misrepresentation; and (v) tortious interference with contracts. One of
         the lawsuits claims unspecified damages while the other lawsuit alleges
         damages  of at least  $10.0 - 15.0  million.  One suit  (which  alleges
         losses of at least $10  million)  is  currently  scheduled  to commence
         trial on June 30,  2008 and the other  suit (with  unspecified  damages
         claimed) is currently scheduled for trial in May 2008. The parties have
         engaged in  discovery  and have  entered  into  settlement  discussions
         seeking  a  global  resolution  of all of  these  disputes.  If  such a
         settlement cannot be achieved,  we intend to defend vigorously  against
         the claims.

         We are subject to routine  litigation  and  administrative  proceedings
         arising in the ordinary course of business. Management does not believe
         that such matters will have a material  adverse impact on our financial
         position, results of operations or cash flows.

ITEM 1A. RISK FACTORS.

         1. In addition to those risk  factors  disclosed  in our filing on Form
            10-K for the year ended December 31, 2006, we are now subject to the
            following additional risk as a result of proposed legislation.

            PROPOSED  LEGISLATION  MAY  ADVERSELY  AFFECT  OUR  TREATMENT  AS  A
            PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES,  WHICH MAY INCREASE OUR
            TAX LIABILITIES AND LOWER AFTER-TAX RETURNS TO SHAREHOLDERS.

               Legislation  was  introduced  in the United States Senate on June
               14, 2007 (the "Proposed  Senate  Legislation")  and in the United
               States House of  Representatives  on June 20, 2007 (the "Proposed
               House  Legislation",   and  together  with  the  Proposed  Senate
               Legislation,  the  "Proposed  Legislation")  that,  if enacted as
               proposed, would tax publicly traded partnerships that directly or
               indirectly  derive  income  from  investment   adviser  or  asset
               management services as corporations.

               Under the Proposed  Legislation,  the  exception  from  corporate
               treatment for a publicly  traded  partnership  would not apply to
               any  partnership  that,  directly or indirectly,  has any item of
               income or gain (including capital gains or dividends), the rights
               to which are derived from  services  provided by any person as an
               investment  adviser, as defined in the Investment Advisers Act of
               1940, or as a person  associated with an investment  adviser,  as
               defined  in that  act.  Further,  the  exception  from  corporate
               treatment  would not apply to a  partnership  that,  directly  or
               indirectly,  has any item of  income or gain  (including  capital
               gains or  dividends),  the rights to which are derived from asset
               management  services provided by an investment  adviser, a person
               associated with an investment  adviser,  or any person related to
               either,  in connection with the management of assets with respect
               to which investment adviser services were provided.  For purposes
               of  the  Proposed  Legislation,  these  determinations  are  made
               without  regard to whether  the person is required to register as
               an investment adviser under the Investment Advisers Act of 1940.

               If the Proposed  Senate  Legislation  were enacted in its present
               form,  it would  generally be  applicable  to taxable  years of a
               partnership beginning on or after June 14, 2007. In the case of a
               partnership  the  interests in which on June 14, 2007 were either
               traded on an established  securities  market or readily tradeable
               on a secondary market (or the substantial equivalent thereof), or
               which, on or before June 14, 2007, filed a registration statement
               with the  Securities and Exchange  Commission  under Section 6 of
               the  Securities  Act,  which was required  solely by reason of an
               initial  public  offering of  interests in the  partnership,  the
               Proposed Senate  Legislation would be applicable to taxable years
               of such  partnership  beginning on or after June 14, 2012. If the
               Proposed House  Legislation  were enacted in its present form, it
               would  generally be  applicable to taxable years of a partnership
               beginning  on  or  after  June  20,   2007,   with  no  temporary
               transitional relief for certain partnerships.

               If the  Proposed  Legislation  or a similar  legislation  were to
               become  law, it is  possible  that we or any of our  subsidiaries
               (other than  Centerline  Capital Group and CMC, which are treated
               as corporations) could be treated as publicly traded partnerships
               or  associations  taxable as a corporation for federal income tax
               purposes.  If we were treated as a corporation for federal income
               tax purposes in any taxable year, our income and deductions would
               be  reported  only on our tax return  rather  than  being  passed
               through  to our  shareholders,  and we would be  required  to pay
               income tax at  corporate  rates on any portion of our income that
               did not constitute tax exempt income.  In this regard,  a portion
               of our tax exempt  income  would be included in  determining  our
               alternative minimum tax liability. The imposition of any such tax
               would reduce the amount of cash  available to be  distributed  to
               our shareholders. In addition,  distributions to our shareholders
               would be ordinary  dividend  income to such  shareholders  to the
               extent of our earnings and profits,  which would  include our tax

                                       64
<PAGE>

               exempt income as well as any other taxable  income we might have.
               Payments of such distributions  would not be deductible by us. If
               any of our subsidiaries  (other than Centerline Capital Group and
               CMC,  which  are  treated  as  corporations)  were  treated  as a
               corporation  for federal  income tax  purposes,  rather than as a
               partnership or a disregarded entity, similar adverse consequences
               could result.

         2. The following  sections of the risk factor titled "THE TAXABILITY OF
            OUR INCOME  DEPENDS UPON THE  APPLICATION  OF TAX LAWS THAT COULD BE
            CHALLENGED"  were  included  in our filing on Form 10-K for the year
            ended December 31, 2006,  but are included here with  clarifications
            as to the legal review of our mortgage revenue bonds:

            "SUBSTANTIAL USER LIMITATION"

               Interest on a mortgage revenue bond we own, other than a bond the
               proceeds  of  which  are  loaned  to  a  charitable  organization
               described in Section  501(c)(3) of the Code, will not be excluded
               from  gross   income   during  any  period  in  which  we  are  a
               "substantial  user" of the properties  financed with the proceeds
               of  such  mortgage  revenue  bond  or  a  "related  person"  to a
               "substantial user."

               A "substantial user" generally  includes any underlying  borrower
               and any person or entity  that uses the  financed  properties  on
               other than a de minimis basis. We would be a "related  person" to
               a "substantial user" for this purpose if, among other things,

                    o    the  same  person  or  entity  owned  more  than  a 50%
                         interest in both us and in the properties financed with
                         the  proceeds  of a  bond  owned  by us or  one  of our
                         subsidiaries; or
                    o    we owned a partnership  or similar  equity  interest in
                         the owner of a property financed with the proceeds of a
                         bond owned by us or one of our subsidiaries.

               Greenberg Traurig has reviewed most of the mortgage revenue bonds
               we own, the  ownership  of the  obligors of our mortgage  revenue
               bonds  and the  ownership  of our  shares  and our  subsidiaries'
               shares,   and  concurs  in  the   conclusion   that  we  are  not
               "substantial  users" of the properties financed with the proceeds
               of the mortgage revenue bonds reviewed by Greenberg  Traurig,  or
               related parties thereto. There can be no assurance, however, that
               the IRS would not challenge  such  conclusion.  If such challenge
               were successful,  the interest  received on any bond for which we
               were treated as a "substantial user" or a "related party" thereto
               would be includable in federally taxable gross income.

               SECURITIZATION PROGRAMS AND REVENUE PROCEDURE 2003-84

               Many of the senior interests in  securitization  programs used by
               us  are  held  by  tax-exempt  money-market  funds.  For  various
               reasons,  money market funds will only acquire and hold interests
               in  securitization  programs  that comply with Revenue  Procedure
               2003-84, which provides for exemption from Schedule K-1 reporting
               requirements   for   certain   partnerships.   Counsel   for  the
               securitization  programs we currently use has advised us that the
               partnerships in those securitization  programs currently meet the
               requirements of Revenue Procedure 2003-84.

               These partnerships intend to continue to meet those requirements,
               which  include an income test and an expense  test, on an ongoing
               basis.  There  can  be no  assurance,  however,  that  unforeseen
               circumstances  might  cause  one or  more  of the  securitization
               partnerships  to fail either the income test or the expense test,
               which would cause these  securitization  partnerships  to have to
               comply with all of the  requirements of subchapter K of the Code.
               In the event one or more of the  securitization  partnerships was
               forced to comply with the provisions of subchapter K of the Code,
               it is likely that all of the  tax-exempt  money market funds that
               hold the senior interests in those  securitizations  would tender
               their  positions.  This would  require the  remarketing  agent to
               locate new  purchasers,  which were not  tax-exempt  money market
               funds, for those tendered senior  interests.  This would probably
               result in an increase in the  distributions to the holders of the
               senior  interests,  which would  reduce,  dollar for dollar,  the
               distributions on the residual  interests in the  securitizations,
               which are owned by us through our subsidiaries

                                       65
<PAGE>

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

         Equity Securities purchased by us
         ---------------------------------

         The following table presents  information related to our repurchases of
         our  equity  securities  during  the  third  quarter  of 2007 and other
         information related to our repurchase program:
<TABLE>
<CAPTION>
                                          Purchases of Equity Securities

                                       (a)              (b)               (c)               (d)
                                                                                          Maximum
                                                                     Total number         number
                                                                       of shares      of shares that
                                    Total            Weighted        purchased as       may yet be
                                   number of          average       part of publicly  purchased under
                                    shares          price paid      announced plans    the plans or
                Period            purchased (1)      per share        or programs       programs (2)
         --------------------   ---------------   ---------------   ---------------   ---------------
         <S>                           <C>        <C>                        <C>              <C>
         July 1-31, 2007                 70,361   $         18.21            69,880
         August 1-31, 2007              114,857             14.27                --
         September 1-30, 2007                --                --                --
                                ---------------   ---------------   ---------------

           Total                        185,218   $         15.76            69,880           303,854
                                ===============   ===============   ===============   ===============
</TABLE>

         (1) 115,338  share  repurchases  were  in  payment  of tax  withholding
             obligations  incurred by holders of newly vested  restricted shares
             and were outside of our share repurchase program.
         (2) In April 2005, our Board of Trustees  authorized 1.5 million shares
             for our  share  repurchase  program.  In April  2007,  our Board of
             Trustees  authorized  an additional  1.5 million  shares under this
             program.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.  None

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.  None

ITEM 5.  OTHER INFORMATION. None

ITEM 6.  EXHIBITS.

         10.1   Executive  Employment  Agreement,  dated  as of January 1, 2007,
                by and between Centerline Capital Group, Inc. and Chris Crouch.*

         10.2   Executive  Employment  Agreement,  dated  as of January 1, 2007,
                by  and  between  Centerline Capital Group, Inc.  and  Donald J.
                Meyer.*

         10.3   Executive Employment  Agreement,  dated  as of January 16, 2007,
                by and between Centerline Capital Group, Inc. and Nicholas A. C.
                Mumford.*

         10.4   Executive  Employment  Agreement,  dated  as of January 1, 2007,
                by  and  between  Centerline Capital Group, Inc.  and  Andrew J.
                Weil.*

         31.1   Certification   by  the  Chief  Executive  Officer  pursuant  to
                Section 302 of the Sarbanes-Oxley Act of 2002.*

         31.2   Certification   by  the  Chief  Financial  Officer  pursuant  to
                Section 302 of the Sarbanes-Oxley Act of 2002.*

         32.1   Certification   by   the  Chief  Executive   Officer  and  Chief
                Financial Officer pursuant to Section 906 of the  Sarbanes-Oxley
                Act of 2002.*

            *   Filed herewith.

                                       66
<PAGE>

                                   SIGNATURES


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


                           CENTERLINE HOLDING COMPANY
                                  (Registrant)


Date:  November 9, 2007            By: /s/ Marc D. Schnitzer
                                       ---------------------
                                       Marc D. Schnitzer
                                       Managing Trustee, Chief Executive Officer
                                       and President
                                       (Principal Executive Officer)


Date:  November 9, 2007            By: /s/ Robert L. Levy
                                       ------------------
                                       Robert L. Levy
                                       Chief Financial Officer
                                       (Principal Financial Officer and
                                        Principal Accounting Officer)

                                       67
<PAGE>

                                                                    Exhibit 31.1


      CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302
                        OF THE SARBANES-OXLEY ACT OF 2002


I, Marc D. Schnitzer, hereby certify that:

     1.  I have  reviewed  this  quarterly  report on Form  10-Q for the  period
         ending September 30, 2007 of Centerline Holding Company;

     2.  Based  on my  knowledge,  this  report  does  not  contain  any  untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances  under which
         such  statements  were made, not misleading  with respect to the period
         covered by this report;

     3.  Based on my knowledge,  the financial  statements,  and other financial
         information  included in this  report,  fairly  present in all material
         respects the financial condition,  results of operations and cash flows
         of the registrant as of, and for, the periods presented in this report;

     4.  The  registrant's  other  certifying  officer and I are responsible for
         establishing  and  maintaining  disclosure  controls and procedures (as
         defined in Exchange Act Rules  13a-15(e)  and  15d-15(e))  and internal
         control  over  financial  reporting  (as defined in Exchange  Act Rules
         13a-15(f) and 15d-15(f)) for the registrant and have:

         a) Designed such  disclosure  controls and  procedures,  or caused such
         disclosure   controls  and   procedures   to  be  designed   under  our
         supervision,  to  ensure  that  material  information  relating  to the
         registrant,  including its consolidated subsidiaries,  is made known to
         us by others within those entities,  particularly  during the period in
         which this report is being prepared;

         b) Designed such internal control over financial  reporting,  or caused
         such internal control over financial reporting to be designed under our
         supervision,  to provide reasonable assurance regarding the reliability
         of financial reporting and the preparation of financial  statements for
         external  purposes in accordance  with  generally  accepted  accounting
         principles;

         c) Evaluated the effectiveness of the registrant's  disclosure controls
         and procedures and presented in this report our  conclusions  about the
         effectiveness of the disclosure controls and procedures,  as of the end
         of the period covered by this report based on such evaluation; and

         d)  Disclosed  in this report any change in the  registrant's  internal
         control over financial  reporting that occurred during the registrant's
         most  recent  fiscal  quarter  that  has  materially  affected,  or  is
         reasonably  likely to  materially  affect,  the  registrant's  internal
         control over financial reporting; and

     5.  The registrant's other certifying  officer and I have disclosed,  based
         on our most  recent  evaluation  of  internal  control  over  financial
         reporting,  to the registrant's auditors and the audit committee of the
         registrant's  board of trustees (or persons  performing  the equivalent
         functions):

         a) All significant  deficiencies and material  weaknesses in the design
         or operation of internal  control over  financial  reporting  which are
         reasonably  likely to  adversely  affect  the  registrant's  ability to
         record, process, summarize and report financial information; and

         b) Any fraud,  whether or not  material,  that  involves  management or
         other  employees  who  have a  significant  role  in  the  registrant's
         internal control over financial reporting.


         Date: November 9, 2007               By:  /s/ Marc D. Schnitzer
                                                   ---------------------
                                                   Marc D. Schnitzer
                                                   Chief Executive Officer
                                                   (Principal Executive Officer)

                                       68
<PAGE>

                                                                    Exhibit 31.2


      CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302
                        OF THE SARBANES-OXLEY ACT OF 2002


I, Robert L. Levy, hereby certify that:

     1.  I have  reviewed  this  quarterly  report on Form  10-Q  of  Centerline
         Holding Company;

     2.  Based  on my  knowledge,  this  report  does  not  contain  any  untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances  under which
         such  statements  were made, not misleading  with respect to the period
         covered by this report;

     3.  Based on my knowledge,  the financial  statements,  and other financial
         information  included in this  report,  fairly  present in all material
         respects the financial condition,  results of operations and cash flows
         of the registrant as of, and for, the periods presented in this report;

     4.  The  registrant's  other  certifying  officer and I are responsible for
         establishing  and  maintaining  disclosure  controls and procedures (as
         defined in Exchange Act Rules  13a-15(e)  and  15d-15(e))  and internal
         control  over  financial  reporting  (as defined in Exchange  Act Rules
         13a-15(f) and 15d-15(f)) for the registrant and have:

         a) Designed such  disclosure  controls and  procedures,  or caused such
         disclosure   controls  and   procedures   to  be  designed   under  our
         supervision,  to  ensure  that  material  information  relating  to the
         registrant,  including its consolidated subsidiaries,  is made known to
         us by others within those entities,  particularly  during the period in
         which this report is being prepared;

         b) Designed such internal control over financial  reporting,  or caused
         such internal control over financial reporting to be designed under our
         supervision,  to provide reasonable assurance regarding the reliability
         of financial reporting and the preparation of financial  statements for
         external  purposes in accordance  with  generally  accepted  accounting
         principles;

         c) Evaluated the effectiveness of the registrant's  disclosure controls
         and procedures and presented in this report our  conclusions  about the
         effectiveness of the disclosure controls and procedures,  as of the end
         of the period covered by this report based on such evaluation; and

         d)  Disclosed  in this report any change in the  registrant's  internal
         control over financial  reporting that occurred during the registrant's
         most  recent  fiscal  quarter  that  has  materially  affected,  or  is
         reasonably  likely to  materially  affect,  the  registrant's  internal
         control over financial reporting; and

     5.  The registrant's other certifying  officer and I have disclosed,  based
         on our most  recent  evaluation  of  internal  control  over  financial
         reporting,  to the registrant's auditors and the audit committee of the
         registrant's  board of trustees (or persons  performing  the equivalent
         functions):

         a) All significant  deficiencies and material  weaknesses in the design
         or operation of internal  control over  financial  reporting  which are
         reasonably  likely to  adversely  affect  the  registrant's  ability to
         record, process, summarize and report financial information; and

         b) Any fraud,  whether  or not material,  that  involves  management or
         other  employees  who  have  a  significant  role  in the  registrant's
         internal control over financial reporting.


         Date: November 9, 2007           By:   /s/ Robert L. Levy
                                                ------------------
                                                Robert L. Levy
                                                Chief Financial Officer
                                                (Principal Financial Officer and
                                                 Principal Accounting Officer)

                                       69
<PAGE>

                                                                    Exhibit 32.1


        CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
            (UNITED STATES CODE, TITLE 18, CHAPTER 63, SECTION 1350)
                  ACCOMPANYING QUARTERLY REPORT ON FORM 10-Q OF
       CENTERLINE HOLDING COMPANY FOR THE QUARTER ENDED SEPTEMBER 30, 2007


In  connection  with the  Quarterly  Report on Form 10-Q of  Centerline  Holding
Company for the quarterly  period  ending  September 30, 2007, as filed with the
Securities and Exchange  Commission on the date hereof (the  "Report"),  Marc D.
Schnitzer,  as Chief  Executive  Officer of our Company,  and Robert L. Levy, as
Chief Financial Officer of our Company,  each hereby  certifies,  pursuant to 18
U.S.C. Section 1350, that:


    (1) The Report fully  complies  with the  requirements  of Section  13(a) or
15(d), as applicable, of the Securities Exchange Act of 1934; and


    (2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of our Company.


 By:  /s/ Marc D. Schnitzer                By:  /s/ Robert L. Levy
      --------------------------                ------------------
      Marc D. Schnitzer                         Robert L. Levy
      Chief Executive Officer                   Chief Financial Officer
      (Principal Executive Officer)             (Principal Financial Officer and
      November 9, 2007                           Principal Accounting Officer)
                                                November 9, 2007

                                       70