UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

______________

FORM 10-Q

______________

(Mark One)

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

For the quarterly period ended March 31, 2012

OR

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

Commission File Number 1-13237

______________

CENTERLINE HOLDING COMPANY

(Exact name of registrant as specified in its charter)

______________

Delaware	13-3949418
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
100 Church Street, New York, New York	10007
(Address of principal executive offices)	(Zip Code)

(212) 317-5700

Registrant’s telephone number

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  þ   No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  þ   No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o		Accelerated filer	o
Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	þ

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

As of May 18, 2012, there were 349.2 million outstanding shares of the registrant’s common shares of beneficial interest.

Table of Contents
CENTERLINE HOLDING COMPANY
FORM 10-Q
PART I – Financial Information				Page
	Item 1	Financial Statements
			Condensed Consolidated Balance Sheets	3
			Condensed Consolidated Statements of Operations	4
			Condensed Consolidated Statements of Comprehensive Income	5
			Condensed Consolidated Statement of Changes in Equity	6
			Condensed Consolidated Statements of Cash Flows	7
		Notes to Condensed Consolidated Financial Statements
			Note 1 – Description of Business and Basis of Presentation	9
			Note 2 – Fair Value Measurement	10
			Note 3 – Assets Pledged as Collateral	16
			Note 4 – Available-for-Sale Investments	17
			Note 5 – Equity Method Investments	21
			Note 6 – Mortgage Loans Held for Sale and Other Assets, Net	21
			Note 7 – Mortgage Servicing Rights, Net	22
			Note 8 – Deferred Costs and Other Assets, Net	23
			Note 9 – Consolidated Partnerships	24
			Note 10 – Notes Payable and Other Borrowings	27
			Note 11 – Secured Financing	29
			Note 12 – Accounts Payable, Accrued Expenses and Other Liabilities	29
			Note 13 – Redeemable Securities	30
			Note 14 – Non-Controlling Interests	31
			Note 15 – General and Administrative Expenses	32
			Note 16 – Provision for (Recovery of) Losses	32
			Note 17 – Earnings per Share	33
			Note 18 – Financial Risk Management and Derivatives	34
			Note 19 – Related Party Transactions	35
			Note 20 – Business Segments	37
			Note 21 – Commitments and Contingencies	39
			Note 22 – Subsequent Events	43
	Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations	44
	Item 3		Quantitative and Qualitative Disclosures about Market Risk	70
	Item 4		Controls and Procedures	71
PART II – Other Information
	Item 1		Legal Proceedings	72
	Item 1A		Risk Factors	72
	Item 2		Unregistered Sales of Equity Securities and Use of Proceeds	73
	Item 3		Defaults Upon Senior Securities	74
	Item 4		Mine Safety Disclosures	74
	Item 5		Other Information	74
	Item 6		Exhibits	74
SIGNATURES

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		PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
		CENTERLINE HOLDING COMPANY
		CONDENSED CONSOLIDATED BALANCE SHEETS
		(in thousands)
			March 31,		December 31,
			2012		2011
			(Unaudited)
Assets:
	Cash and cash equivalents		$	93,584	$	95,992
	Restricted cash			16,658		16,185
	Investments:
		Available-for-sale		399,406		394,355
		Equity method		4,625		8,794
		Mortgage loans held for sale and other assets		84,046		190,192
	Investments in and loans to affiliates, net			5,970		5,641
	Intangible assets, net			8,634		8,784
	Mortgage servicing rights, net			75,103		72,520
	Deferred costs and other assets, net			75,341		75,791
	Consolidated partnerships:
		Equity method investments		2,889,695		3,079,803
		Land, buildings and improvements, net		435,830		460,804
		Other assets		268,043		264,437
Total assets			$	4,356,935	$	4,673,298
Liabilities:
	Notes payable and other borrowings		$	218,450	$	322,849
	Secured financing			615,982		618,163
	Accounts payable, accrued expenses and other liabilities			179,402		187,230
	Preferred shares of subsidiary (subject to mandatory repurchase)			55,000		55,000
	Redeemable securities			6,000		-
	Consolidated partnerships:
		Notes payable		137,970		156,643
		Due to tax credit property partnerships		122,435		132,246
		Other liabilities		324,957		319,256
Total liabilities				1,660,196		1,791,387
Redeemable securities				-		6,000
Commitments and contingencies
Equity:
	Centerline Holding Company beneficial owners’ equity:
		Special preferred voting shares; no par value; 11,867 shares issued and outstanding in 2012 and 2011		119		119
		Common shares; no par value; 800,000 shares authorized; 356,226 issued and 349,166 outstanding in 2012 and 2011		204,336		209,735
		Treasury shares of beneficial interest – common, at cost; 7,060 shares in 2012 and 2011		(65,764)		(65,764)
		Accumulated other comprehensive income		74,991		66,661
	Centerline Holding Company total			213,682		210,751
	Non-controlling interests			2,483,057		2,665,160
Total equity				2,696,739		2,875,911
Total liabilities and equity			$	4,356,935	$	4,673,298

See accompanying notes to condensed consolidated financial statements.

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CENTERLINE HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
				Three Months Ended
				March 31,
				2012		2011
Revenues:
	Interest income			$	12,136	$	7,827
	Fee income				9,255		7,930
	Gain on sale of mortgage loans				10,413		5,723
	Other				1,070		971
	Consolidated partnerships:
		Interest income, net			(1,357)		245
		Rental income			28,739		25,923
		Other			195		90
			Total revenues		60,451		48,709
Expenses:
	General and administrative				27,302		23,578
	Provision for (recovery of) losses				6,005		(2,789)
	Interest				12,671		13,499
	Interest – distributions to preferred shareholders of subsidiary				960		960
	Depreciation and amortization				3,859		3,546
	Consolidated partnerships:
		Interest			5,072		4,661
		Other expenses			60,411		45,833
			Total expenses		116,280		89,288
Loss before other (loss) income					(55,829)		(40,579)
Other (loss) income:
	Gain on settlement of liabilities				-		1,756
	Other losses from consolidated partnerships				(153,364)		(61,441)
Loss from continuing operations before income tax provision					(209,193)		(100,264)
Income tax provision – continuing operations					(60)		(193)
Net loss from continuing operations					(209,253)		(100,457)
Discontinued operations
Net income from discontinued operations					-		253
Net loss					(209,253)		(100,204)
Net loss attributable to non-controlling interests					203,854		100,966
Net (loss) income attributable to Centerline Holding Company shareholders				$	(5,399)	$	762
Net (loss) income per share
	Basic
		(Loss) income from continuing operations		$	(0.02)	$	-	(1)
		(Loss) income from discontinued operations		$	N/A	$	-	(1)
	Diluted
		(Loss) income from continuing operations		$	(0.02)	$	-	(1)
		(Loss) income from discontinued operations		$	N/A	$	-	(1)
Weighted average shares outstanding
	Basic				349,166		348,647
	Diluted				349,166		349,268
(1)	Amount calculates to zero when rounded.
N/A - Not applicable

See accompanying notes to condensed consolidated financial statements.

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CENTERLINE HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)
		Three Months Ended
		March 31,
		2012		2011
Net Loss		$	(209,253)	$	(100,204)
Other comprehensive income - unrealized gains, net			8,344		3,654
	Comprehensive loss		(200,909)		(96,550)
Less: Other comprehensive loss attributable to non-controlling interests			203,840		100,978
	Comprehensive income attributable to Centerline Holding Company shareholders	$	2,931	$	4,428

See accompanying notes to condensed consolidated financial statements.

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CENTERLINE HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(in thousands)
(Unaudited)
									Accumulated
		Special							Other		Non-
		Preferred							Comprehensive		Controlling
		Voting Shares		Common Shares			Treasury Shares		Income/(loss)		Interests		Total
				Shares
January 1, 2012		$	119	349,166	$	209,735	$	(65,764)	$	66,661	$	2,665,160	$	2,875,911
	Net loss		-	-		(5,399)		-		-		(203,854)		(209,253)
	Unrealized gains, net		-	-		-		-		8,330		14		8,344
	Contributions		-	-		-		-		-		29,845		29,845
	Net decrease due to newly consolidated general partnerships		-	-		-		-		-		(985)		(985)
	Distributions		-	-		-		-		-		(7,123)		(7,123)
March 31,2012		$	119	349,166	$	204,336	$	(65,764)	$	74,991	$	2,483,057	$	2,696,739

See accompanying notes to condensed consolidated financial statements.

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CENTERLINE HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
		Three Months Ended
		March 31,
		2012		2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(209,253)	$	(100,204)
Adjustments to reconcile net income (loss) to cash flows used in operating activities:
	Non-cash loss from consolidated partnerships		205,426		102,780
	Gain on settlement of liabilities		-		(1,756)
	Lease termination costs		3,318		-
	Credit intermediation assumption fees		911		1,397
	Reserves for bad debts, net of reversals		3,287		2,711
	Affordable Housing loss reserve recovery		(600)		(5,500)
	Depreciation and amortization		3,859		3,546
	Share-based compensation expense		-		20
	Change in fair value of derivatives		(850)		(703)
	Non-cash expense, net		4,100		5,705
	Capitalization of mortgage servicing rights		(5,779)		(3,634)
Changes in operating assets and liabilities:
	Mortgage loans held for sale		106,101		(4,790)
	Receivables		416		972
	Other assets		(1,630)		(772)
	Deferred revenues		(1,528)		1,295
	Accounts payable, accrued expenses and other liabilities		(7,376)		(4,538)
Net cash flow provided by (used in) operating activities			100,402		(3,471)
CASH FLOWS FROM INVESTING ACTIVITIES:
	Sale and repayment of available-for-sale securities		49		(54)
	Sale and repayments of mortgage loans held for investment		6		11
	Acquisition of equity interests in Tax Credit Property Partnerships		(3,193)		(6,988)
	Proceeds from sale of equity interests to Tax Credit Fund Partnerships		7,362		5,628
	Deferred investment acquisition cost		(72)		-
	(Increase) decrease in restricted cash, escrows and other cash collateral		(472)		612
	Acquisition of furniture, fixtures and leasehold improvements		(438)		(76)
	Equity investments and other investing activities		2		(861)
Net cash flow provided by (used in) investing activities			3,244		(1,728)

See accompanying notes to condensed consolidated financial statements.

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CENTERLINE HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
			Three Months Ended
			March 31,
			2012		2011
CASH FLOWS FROM FINANCING ACTIVITIES:
	Distributions to equity holders			(1,556)		(1,556)
	Repayments of term loan			(2,976)		-
	(Decrease) increase in mortgage banking warehouse and repurchase facilities			(103,622)		4,938
	Increase in revolving credit facility			2,200		4,000
	Redemption of Convertible CRA Shares			-		(161)
	Deferred financing and other offering costs			(100)		-
Net cash flow (used in) provided by financing activities				(106,054)		7,221
Net (decrease) increase in cash and cash equivalents				(2,408)		2,022
Cash and cash equivalents at the beginning of the period				95,992		119,616
		Cash and cash equivalents at end of period	$	93,584	$	121,638
Non-cash investing and financing activities:
	Net change in re-securitized mortgage revenue bonds:
		Secured financing liability	$	2,181	$	14,330
		Mortgage revenue bonds	$	(2,181)	$	(16,020)
		Decrease in Series B Freddie Mac Certificates	$	-	$	1,683
		Decrease in Series A-1 Freddie Mac Certificates	$	-	$	6
	Exchange of Convertible Special Common Units to Common Shares		$	-	$	7,102

See accompanying notes to condensed consolidated financial statements.

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CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – Description of Business and Basis of Presentation

A. Description of Business

Centerline Holding Company (“CHC”), through its subsidiaries, provides real estate financing and asset management services, focused on affordable and conventional multifamily housing.  We offer a range of both debt financing and equity investment products, as well as asset management services to developers, owners, and investors.  We are structured to originate, underwrite, service, manage, refinance or sell assets through all phases of its life cycle.  As a leading sponsor of Low-Income Housing Tax Credit (“LIHTC”) funds, we have raised more than $10 billion in equity across 136 funds.  Today we manage $9.3 billion of investor equity within 116 funds and invest in approximately 1,200 assets located in 45 U.S. states.  Our multifamily lending platform services $11.4 billion in loans and mortgage revenue bonds.  A substantial portion of our business is conducted through our subsidiaries, generally under the designation Centerline Capital Group LLC (“CCG”).  The term “we” (“us”, “our” or “the Company”) as used throughout this document may refer to a subsidiary or the business as a whole, while the term “parent trust” refers only to CHC as a stand-alone entity.

We manage our operations through six reportable segments.  Our reportable segments consist of four core business segments and two additional segments: Corporate and Consolidated Partnerships.  Our four core business segments are:

Affordable Housing Equity provides LIHTC equity financing products for affordable multifamily housing, offers investment opportunities and fund management services to investors in affordable multifamily equity and manages the disposition of assets through the end of the fund’s life;

Affordable Housing Debt provides financing to developers and owners of affordable multifamily properties and manages our retained interests from the December 2007 re-securitization of our mortgage revenue bond portfolio with the Federal Home Loan Mortgage Corporation (“Freddie Mac”);

Mortgage Banking, provides conventional mortgage financing for multifamily housing, manufactured housing and student housing; and

Asset Management, provides active management of multifamily real estate assets owned by our Affordable Housing Equity investment funds by managing construction risk during the construction process, managing specially serviced assets, and monitoring our real estate owned portfolio.  For Affordable Housing Debt loans, Asset Management manages construction risk during the construction process and actively manages specially serviced assets.

Our Corporate segment includes: Finance and Accounting, Treasury, Legal, Marketing and Investor Relations, Operations and Risk Management, supporting our four core business segments.

Consolidated Partnerships comprise certain investment funds we control, regardless of the fact that we have virtually no economic interest in such entities.  Consolidated Partnerships include the LIHTC investment fund partnerships we originate and manage through the Affordable Housing Equity segment (“Tax Credit Fund Partnerships”) and property-level partnerships for which we have assumed the role of general partner or for which we have foreclosed upon the property (“Tax Credit Property Partnerships”), all of which we are required to consolidate in accordance with the authoritative accounting guidance.

B. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements were prepared consistent with generally accepted accounting principles 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 (only normal recurring adjustments) necessary to present fairly the financial statements of interim periods.  Given that our businesses may have a higher volume of transactions in some quarterly periods rather than others, the operating results for interim periods may not be indicative of full year results.

These unaudited condensed consolidated financial statements are intended to be read in conjunction with the audited consolidated financial statements and notes included in our Form 10-K for the year ended December 31, 2011 (the “2011 Form 10-K”), which contains a summary of our significant accounting policies.  Certain footnote detail is omitted from the condensed consolidated financial statements unless there is a material change from the information included in the 2011 Form 10-K.

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CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

C. Recently Issued and Adopted Accounting Pronouncements

During the three months ended March 31, 2012 we adopted the following new accounting pronouncements:

·   On January 1, 2012, we adopted Accounting Standards Update (“ASU”) No. 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements.  Thisupdate revises the criteria for assessing effective control for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity.  The adoption of ASU 2011-03 did not have a material impact on our consolidated financial statements.

·   On January 1, 2012, we adopted ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.  This update amends theexisting fair value guidance to improve consistency in the application and disclosure of fair value measurements in U.S. GAAP and International Financial Reporting Standards.  ASU 2011-04 provides certain clarifications to the existing guidance, changes certain fair value principles, and enhances disclosure requirements.  While requiring additional disclosures, the adoption of ASU 2011-04 did not have an impact on our financial condition, results of operations or cash flows.

·   On January 1, 2012, we adopted ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income.  ASU 2011-05 removes the option to present the components of other comprehensive income (“OCI”) as part of the statement of changes in equity.  In addition, ASU 2011-05 requires consecutive presentation of the statement of operations and OCI and presentation of reclassification adjustments on the face of the financial statements from OCI to net income.    The adoption of ASU 2011-05 impacts presentation of a separate financial statement only and did not have an impact on our financial condition, results of operations or cash flows.

·   On January 1, 2012, we adopted ASU No. 2011-12, Comprehensive Income (Topic 220), Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05, to defer the effective date of the specific requirement to present items that are reclassified out of accumulated other comprehensive income to net income alongside their respective components of net income and OCI until the Financial Accounting Standards Board is able to reconsider the applicable provisions. The adoption of ASU 2011-12 impacts presentation only and did not have an impact on our financial condition, results of operations or cash flows.

During the three months ended March 31, 2012, no new accounting pronouncements were issued that would impact the Company.

NOTE 2 – Fair Value Measurement

A. General

Certain assets are “marked to market” every reporting period (i.e., on a recurring basis) in accordance with GAAP.  Other assets are carried at amortized cost (such as mortgage loans held for investment), are initially recorded at fair value and amortized (such as Mortgage Servicing Rights (“MSRs”)) or are carried at the lower of cost or fair value (mortgage loans held for sale); these are tested for impairment periodically and would be adjusted to fair value if impaired (i.e., measured at fair value on a non-recurring basis).

We have an established process for determining fair values. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is based on quoted market prices, where available. If listed prices or quotes are not available, fair value is based on internally developed models that consider relevant transaction data such as maturity and use as inputs, market-based or independently sourced market parameters.  We have controls in place intended to ensure that our fair values are appropriate.  Our Finance and Accounting group, independent from business operations ensures quarterly that observable market prices and market based parameters are used for valuation whenever possible.  For those products with material parameter risk for which observable market levels do not exist, an independent review of the assumptions made on pricing is performed on a quarterly basis.  Any changes to valuation methodology are reviewed by management to confirm that the changes are justified.

The methods described above to estimate fair value may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

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CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

B. Valuation Hierarchy

A three-level valuation hierarchy has been established under U.S. GAAP for disclosure of fair value measurements. The valuation hierarchy is based on the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

·   Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access.

·   Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly.  Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

·   Level 3 inputs are unobservable and typically based on our own assumptions, including situations where there is little, if any, market activity.

A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.

Both observable and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 category.  As a result, the unrealized gains and losses for assets within the Level 3 category presented in the tables below may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in historical company data) inputs.

C. Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following are the assets and liabilities that we measure at fair value on a recurring basis and the valuation methodologies and inputs used by us:

Series A-1 Freddie Mac Certificates	We generally determine fair value based on observable market transactions of similar instruments when available. Because these certificates typically have a limited or inactive market, and in the absence of observable market transactions, we estimate fair value for each certificate utilizing the present value of the expected cash flows of the scheduled interest payments on each certificate discounted at a rate for comparable tax-exempt investments and then compare it against any similar market transactions.
Series B Freddie Mac Certificates	We determine fair value of the Series B Freddie Mac Certificates, which represent the residual interests of the re-securitized portfolio, based upon a discounted cash flow model that follows the contractual provisions of the certificates. The significant assumptions of the valuation which impact the cash flow and thus the valuation include:
	●	estimating the constant default rate (“CDR”) and the prepayment rates of the mortgage revenue bonds in the managed portfolio, estimates which are based on our historical experience and industry studies related to properties comparable to those underlying the bonds;
	●	estimating the loss severity, upon default, associated with the mortgage revenue bonds collateral;
	●	estimating the extent to which other parties involved in our planned restructuring of the bonds underlying the certificates will participate and the timing of that restructuring; and
	●	applying an appropriate discount rate, which we consider in comparison to comparable residual interests, along with consideration of the tax-exempt nature of the associated income.

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CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Mortgage revenue bonds

As mortgage revenue bonds typically have a limited or inactive market, in the absence of observable market transactions, we estimate fair value for bonds secured by performing properties (“Performing Assets”) by calculating the net present value based on the original bond amortization schedule, utilizing a discount rate for comparable tax-exempt investments as obtained from relevant market makers. For bonds secured by properties with substandard performance (“Non-performing Assets”), the fair value is determined by utilizing the direct capitalization methodology and applying a capitalization rate obtained from market data for comparative tax exempt investments to assumed stabilized net operating income levels.  Management uses judgment based on individual property markets to determine stabilized net operating income.

Interest rate derivatives

The fair values of interest rate derivatives are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts).  The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curve) derived from observable market interest rate curves.  In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as thresholds and guarantees.

The following tables present the assets and liabilities measured at fair value as of March 31, 2012 and December 31, 2011, and indicate the fair value hierarchy of the valuation techniques we utilize to determine fair value:

									Balance
									as of
									March 31,
(in thousands)			Level 1		Level 2		Level 3		2012
Assets
Available-for-sale investments:
	Freddie Mac Certificates:
		Series A-1	$	-	$	-	$	133,897	$	133,897
		Series B		-		-		62,388		62,388
	Mortgage revenue bonds			-		-		203,121		203,121
		Total available-for-sale investments	$	-	$	-	$	399,406	$	399,406
Interest rate derivatives(1)			$	-	$	1,397	$	-	$	1,397
Liabilities
Interest rate derivatives(2)			$	-	$	27,796	$	-	$	27,796

(1) Included in “Deferred costs and other assets, net” on the Condensed Consolidated Balance Sheets.

(2) Included in “Accounts payable, accrued expenses and other liabilities” on the Condensed Consolidated Balance Sheets.

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CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

									Balance
									as of
									December 31,
(in thousands)			Level 1		Level 2		Level 3		2011
Assets
Available-for-sale investments:
	Freddie Mac Certificates:
		Series A-1	$	-	$	-	$	134,360	$	134,360
		Series B		-		-		64,857		64,857
	Mortgage revenue bonds			-		-		195,138		195,138
		Total available-for-sale investments	$	-	$	-	$	394,355	$	394,355
Interest rate derivatives			$	-	$	1,488	$	-	$	1,488
Liabilities
Interest rate derivatives			$	-	$	28,737	$	-	$	28,737

For key fair value assumptions used in measuring Level 3 assets and for the sensitivity of the fair value to changes in these assumptions (see Note 4).

The following tables include a rollforward of assets measured at fair value on a recurring basis and for which we utilized Level 3 inputs to determine fair value:

				Three Months Ended March 31, 2012
				Series A-1		Series B		Mortgage
				Freddie Mac		Freddie Mac		Revenue
(in thousands)				Certificates		Certificates		Bonds			Total
Balance at January 1, 2012				$	134,360	$	64,857	$	195,138		$	394,355
	Total realized and unrealized gains or (losses):
		Realized gain recognized in earnings			-		-		-			-
		Unrealized (loss) gain recorded in other
			comprehensive income (loss)		(459)		(444)		9,234			8,331
	Amortization or accretion				(4)		(2,025)		43			(1,986)
	Purchases, sales, issuances, settlements and other adjustments(1)				-		-		(1,294)	(2)		(1,294)
	Net transfers in and/or out of Level 3				-		-		-			-
Balance at March 31, 2012				$	133,897	$	62,388	$	203,121		$	399,406
Amount of total gains for the period included in
	earnings attributable to the change in unrealized
	gains or losses relating to assets still held at
	March 31, 2012			$	-	$	-	$	-		$	-

- 13 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

				Three Months Ended March 31, 2011
				Series A-1		Series B		Mortgage
				Freddie Mac		Freddie Mac		Revenue
(in thousands)				Certificates		Certificates		Bonds			Total
Balance at January 1, 2011				$	129,406	$	63,215	$	292,659		$	485,280
	Total realized and unrealized gains or (losses):
		Realized gain recognized in earnings			-		-		-			-
		Unrealized (loss) gain recorded in other
			comprehensive income (loss)		(2,022)		4,412		(1,326)			1,064
	Amortization or accretion				(3)		(4,454)		49			(4,408)
	Purchases, sales, issuances, settlements and other adjustments(1)				1,844		6		(35,668)	(3)		(33,818)
	Net transfers in and/or out of Level 3				-		-		-			-
Balance at March 31, 2011				$	129,225	$	63,179	$	255,714		$	448,118
Amount of total gains for the period included in
	earnings attributable to the change in unrealized
	gains or losses relating to assets still held at
	March 31, 2011			$	-	$	-	$	-		$	-

(1) No purchases, sales, issuances or settlements occurred during the reporting period.

(2) Reflects de-recognition of one mortgage revenue bond as a result of repayment during the period.

(3) Reflects the elimination of certain mortgage revenue bonds as a result of the consolidation of the underlying properties upon obtaining control of the related Tax Credit Property Partnerships, as well as a bond that received sale treatment during the period (see Note 4).

D. Assets and Liabilities Not Measured at Fair Value

For cash and cash equivalents, restricted cash, accounts receivable, stabilization escrow, accounts payable, accrued expenses and other liabilities as well as variable-rate notes payable and other borrowings, recorded values approximate fair value due to their terms, or their liquid or short-term nature.

In accordance with GAAP, certain financial assets and liabilities are included on our condensed consolidated balance sheet at amounts other than fair value.  A description of those assets and liabilities is as follows:

Mortgage loans held for investment	Fair value is determined by using a combination of updated appraised values and broker quotes or services supplying market and sales data in various geographical locations where the collateral is located.
Mortgage loans held for sale	Fair value is estimated by calculating the assumed gain/loss of the expected loan sale to the buyer, the expected net future cash flows associated with the servicing of the loan and the effects of interest rate movements between the date of rate lock and the balance sheet date.
MSRs	We estimate the fair value through a discounted cash flow analysis utilizing market information obtained with the assistance of third-party valuation specialists. Inputs into this analysis include contractual servicing fees, our projected cost to service as well as estimates of default rates, prepayment speeds and an appropriate discount rate. While certain of the inputs such as fee rates and discount rates are observable, most of the other inputs are based on historical company data.

- 14 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Secured financing	Fair value is estimated using either quoted market prices or discounted cash flow analyses based on our current borrowing rates for similar types of borrowing arrangements, which reflect our current credit standing.
Preferred shares of subsidiary (subject to mandatory repurchase)	As the preferred shares are economically defeased by the Series A-1 Freddie Mac certificates, the fair value is determined in a manner consistent with the Series A-1 Freddie Mac certificates.  As these instruments typically have a limited or inactive market, and in the absence of observable market transactions, we estimate the fair value utilizing the present value of the expected cash flows discounted at a rate for comparable tax-exempt investments.
Fixed-rate notes payable	Fair value is estimated by utilizing the present value of the expected cash flows discounted at a rate for comparable tax-exempt investments.

The following table presents information about our more significant assets and liabilities that are not carried at fair value:
			March 31, 2012				December 31, 2011
		Fair Value
		Hierarchy	Carrying				Carrying
(in thousands)		Level	Value		Fair Value		Value		Fair Value
Mortgage loans held for investment		3	$	1,291	$	1,329	$	1,335	$	1,335
Mortgage loans held for sale		2		82,755		85,335		188,855		196,669
MSRs		3		75,103		82,040		72,520		78,814
Secured financing		3		615,982		481,815		618,163		474,968
Preferred shares of subsidiary (subject to
	mandatory repurchase)	3		55,000		61,553		55,000		61,981
Redeemable securities		3		6,000		1,425
Consolidated Partnerships:
	Fixed-rate notes payable	3		137,970		96,087		156,643		99,527

- 15 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – Assets Pledged as Collateral

In connection with our Term Loan and Revolving Credit Facility (Note 10), the stock of substantially all of our subsidiaries is pledged as collateral.  In addition, substantially all of our other assets are pledged as collateral to our Term Loan and Revolving Credit Facility subject to the liens detailed below.  The following table details assets we have specifically pledged as collateral for various debt facilities or other contractual arrangements that provide first liens ahead of the Term Loan and Revolving Credit Facility:

				Carrying
				Amount of
				Collateral at
				March 31,
				2012
Collateral		Balance Sheet Classification		(in thousands)		Associated Debt Facility/Liability
Cash at Centerline Mortgage		Restricted cash		$	12,535	Mortgage loan loss sharing agreements (Note 21)
	Capital Inc. (“CMC”)
Cash at Centerline Financial LLC		Cash and cash equivalents		$	66,314	Affordable Housing Yield transactions  (Note 21)
	("CFin" or "Centerline Financial")						and Centerline Financial undrawn credit facility (Note 10)(1)
Series A-1 Freddie Mac		Investments – available-for-sale – Freddie Mac		$	114,515	Preferred shares of subsidiary (2)
	certificates at Centerline		certificates (Note 4)
	Equity Issuer Trust ("Equity Issuer")
Series A-1 Freddie Mac		Investments – available-for-sale – Freddie Mac		$	19,382	Affordable Housing Yield transactions (Note 21)
	Certificates at Centerline		certificates (Note 4)
	Guaranteed Holdings LLC ("Guaranteed Holdings")
Mortgage loans at CMC and		Other investments – mortgage loans held for		$	82,755	Mortgage Banking warehouse facilities
	Centerline Mortgage Partners		sale (Note 6)
	Inc. (“CMP”)
Collateral posted with		Deferred costs and other assets, net (Note 8)		$	44,149	Affordable Housing Yield transactions (Note 21)
	counterparties at Guaranteed
	Holdings

(1) These assets are subject to a priority lien related to the Affordable Housing Yield transactions and a subordinated lien related to the Centerline Financial undrawn credit facility.

(2) While not collateral, these assets economically defease the preferred shares of subsidiary.

We are required as part of our mortgage loan loss sharing agreements with Freddie Mac to provide security for payment of the reimbursement obligation.  The collateral can include a combination of the net worth of one of our Mortgage Banking subsidiaries, a letter of credit and/or cash.  To meet this collateral requirement, we have provided to Freddie Mac letters of credit totaling $12.0 million issued by Bank of America as a part of our Revolving Credit Facility (see Note 21).

In accordance with the requirements of its operating agreement, Centerline Financial has a cash balance of $66.3 million as of March 31, 2012 in order to maintain its minimum capital requirements.  In addition, in accordance with the requirements of the Centerline Financial operating agreement, one of our subsidiaries pledged two taxable bonds with an aggregate notional amount of $3.2 million and the associated cash received on these bonds to Centerline Financial in order to maintain its minimum capital requirements.  As these assets are pledged between two of our subsidiaries they were excluded from the table above.

- 16 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 4 – Available-for-Sale Investments

Available-for-sale investments consisted of:
			March 31,		December 31,
	(in thousands)		2012		2011
	Freddie Mac Certificates:
		Series A-1	$	133,897	$	134,360
		Series B		62,388		64,857
	Mortgage revenue bonds			203,121		195,138
		Total	$	399,406	$	394,355

A. Freddie Mac Certificates

We retained Series A-1 and Series B Freddie Mac Certificates in connection with the December 2007 re-securitization of the mortgage revenue bond portfolio with Freddie Mac.  The Series A-1 Freddie Mac Certificates are fixed rate securities, whereas the Series B Freddie Mac Certificates are residual interests of the re-securitization trust.

Series A-1

Information with respect to the Series A-1 Freddie Mac Certificates is as follows:

		March 31,		December 31,
(in thousands)		2012		2011
Amortized cost		$	177,575	$	177,579
Gross unrealized gains			20,664		21,344
Fair value			198,239		198,923
	Less: eliminations(1)		(64,342)		(64,563)
Consolidated fair value		$	133,897	$	134,360

(1) A portion of the Series A-1 Freddie Mac Certificates relate to re-securitized mortgage revenue bonds that are not reflected as sold for GAAP purposes. Accordingly, that portion is eliminated in consolidation.

During each of the three months ended March 31, 2012 and 2011, we received $2.7 million in cash interest from the Series A-1 Freddie Mac Certificates.

In measuring the fair value of the Series A-1 Freddie Mac Certificates, we used an average discount rate of 2.96% as of March 31, 2012 and 3.04% as of December 31, 2011.

The fair value and the sensitivity of the fair value to immediate adverse changes in those assumptions are as follows:
			March 31,
	(in thousands)		2012
	Fair value of Freddie Mac A-1 Certificates		$	133,897
	Discount rate:
		Fair value after impact of 2% adverse change		124,624
		Fair value after impact of 4% adverse change		116,310

- 17 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

These sensitivities are hypothetical changes in fair value and cannot be extrapolated because the relationship of the changes in assumption to the changes in fair value may not be linear.  Accordingly, no assurance can be given that actual results would be consistent with the results of these estimates.

Series B
Information with respect to the Series B Freddie Mac Certificates is as follows:
			March 31,		December 31,
	(in thousands)		2012		2011
	Amortized cost basis		$	26,046	$	30,915
	Gross unrealized gains			36,906		35,573
		Subtotal/fair value(1)		62,952		66,488
		Less: eliminations(2)		(564)		(1,631)
	Consolidated fair value		$	62,388	$	64,857

(1)	The fair value of the Series B Freddie Mac Certificates decreased primarily due to the December 31, 2011 projected cash flows which included contingent interest of $2.2 million on an underlying bond which was received in the first quarter of 2011 as expected.
(2)	A portion of the Series B Freddie Mac Certificates relates to re-securitized mortgage revenue bonds that were not reflected as sold.  Accordingly, that portion is eliminated in consolidation.

During the three months ended March 31, 2012 and 2011, we received $9.7 million and $6.5 million in cash, respectively, as interest from the Series B Freddie Mac Certificates.

Delinquent collateral loans underlying the certificates had an unpaid principal balance of $109.5 million and $120.2 million at March 31, 2012 and December 31, 2011, respectively; projected remaining losses are estimated at 3.45% or $86.9 million of the underlying securitization.  During the three months ended March 31, 2012, there were no actual losses in the underlying securitization.  No impairments were recorded for the three months ended March 31, 2012 and 2011.

Key unobservable inputs in measuring the Series B Freddie Mac Certificates are provided in the table below:

	March 31,		December 31,
	2012		2011
Weighted average discount rate	26.0	%	26.0	%
Constant prepayment rate	90.0	%	90.0	%
Weighted average life	8.1	years	8.3	years
Constant default rate	2.0	%	2.0	%
Default severity rate	21.0	%	21.0	%

The weighted average life of the assets in the pool that can be prepaid was 7.9 years as of March 31, 2012 and 8.1 years as of December 31, 2011.

- 18 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The fair value and the sensitivity of the fair value to immediate adverse changes in those assumptions are as follows:

		March 31,
(in thousands)		2012
Fair value of Freddie Mac B Certificates		$	62,388
Constant prepayment rate:
	Fair value after impact of 5% adverse change		62,157
	Fair value after impact of 10% adverse change		61,396
Discount rate:
	Fair value after impact of 5% adverse change		54,098
	Fair value after impact of 10% adverse change		47,705
Constant default rate:
	Fair value after impact of 1% adverse change		56,524
	Fair value after impact of 2% adverse change		50,917
Default severity rate:
	Fair value after impact of 5% adverse change		60,936
	Fair value after impact of 10% adverse change		59,483

These sensitivities are hypothetical changes in fair value and cannot be extrapolated because the relationship of the changes in assumption to the changes in fair value may not be linear.  Accordingly, no assurance can be given that actual results would be consistent with the results of these estimates. Increases (decreases) in any of the above inputs in isolation would result in a lower (higher) fair value measurement.  Generally, a change in the assumption used for constant default rate would be accompanied by a directionally opposite change in the assumption used for constant prepayment rate and discount rate.

B. Mortgage Revenue Bonds
The following table summarizes our mortgage revenue bond portfolio:
			March 31,		December 31,
	(in thousands)		2012		2011
	Securitized:
		Included in December 2007 re-securitization transaction and accounted for as financed	$	199,649	$	191,564
	Not securitized			3,472		3,574
	Total at fair value		$	203,121	$	195,138

Our mortgage revenue bond portfolio decreased from 43 bonds (as of December 31, 2011) to 42 bonds (as of March 31, 2012).  The increase in the value of our mortgage revenue bond portfolio is primarily attributable to the increase of $9.2 million due to an increase in observed capitalization rates in certain states pertaining to improved market conditions as well as improvements in performance in certain underlying properties, offset by the repayment of one mortgage revenue bond in the amount of $0.8 million and principal paydowns of $0.5 million.

- 19 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The amortized cost basis of our portfolio of mortgage revenue bonds and the related unrealized gains and losses are as follows:

	March 31,		December 31,
(in thousands)	2012		2011
Amortized cost basis	$	218,218	$	219,469
Gross unrealized gains		20,499		18,960
Gross unrealized losses		(35,596)		(43,291)
Fair value	$	203,121	$	195,138

Key fair value assumptions used in measuring the mortgage revenue bonds are provided in the table below:
		March 31,		December 31,
		2012		2011
	Capitalization rate range (Non-performing Assets)	6.95-9.15	%	6.95-9.15	%
	Discount Rate (Performing Assets)	6.5	%	6.5	%

The fair value and the sensitivity of the fair value to the immediate adverse changes in those assumptions are as follows:
			March 31,
	(in thousands)		2012
	Fair value of Mortgage revenue bonds		$	203,121
	Capitalization rate (Non-performing Assets):
		Fair value after impact of 5% adverse change		183,684
		Fair value after impact of 10% adverse change		168,218
	Discount rate (Performing Assets):
		Fair value after impact of 5% adverse change		201,289
		Fair value after impact of 10% adverse change		199,580

These sensitivities are hypothetical changes in fair value and cannot be extrapolated because the relationship of the changes in assumption to the changes in fair value may not be linear.  Accordingly, no assurance can be given that actual results would be consistent with the results of these estimates.

For mortgage revenue bonds in an unrealized loss position as of the dates presented, the fair value and gross unrealized losses, aggregated by length of time that individual bonds have been in a continuous unrealized loss position, is summarized in the table below:

- 20 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	Less than		12 Months
(dollars in thousands)	12 Months		or More		Total
March 31, 2012
Number		6		16		22
Fair value	$	20,267	$	62,939	$	83,206
Gross unrealized losses	$	7,791	$	27,805	$	35,596
December 31, 2011
Number		11		14		25
Fair value	$	43,098	$	42,021	$	85,119
Gross unrealized losses	$	14,622	$	28,669	$	43,291

We have evaluated the nature of the unrealized losses above and have concluded that they are temporary and should not be realized at this time as de-recognition of these bonds, should it occur, would not result in a loss.

NOTE 5 – Equity Method Investments
The table below provides the components of equity method investments as of:
		March 31,		December 31,
	(in thousands)	2012		2011
	Equity interests in Tax Credit Property Partnerships	$	4,625	$	8,794

We acquire interests in entities that own tax credit properties.  We hold these investments on a short-term basis for inclusion in future Affordable Housing Equity segment investment fund offerings.  We expect to sell these investments at cost into these Tax Credit Fund Partnerships.  During the three months ended March 31, 2012, we acquired interests in two entities that own tax credit properties and sold three properties, at cost, into LIHTC investment funds.

NOTE 6 – Mortgage Loans Held for Sale and Other Assets
The table below provides the components of other investments as of:
			March 31,		December 31,
	(in thousands)		2012		2011
	Mortgage loans held for sale		$	82,755	$	188,855
	Mortgage loans held for investment			1,291		1,335
	Stabilization escrow			-		2
		Total	$	84,046	$	190,192

A. Mortgage Loans Held for Sale

Mortgage loans held for sale include originated loans pre-sold to Government Sponsored Enterprises (“GSEs”), such as Federal National Mortgage Association (“Fannie Mae”) and Freddie Mac or to the Government National Mortgage Association (“Ginnie Mae”) under contractual sale obligations that normally settle within 30 days of origination.  In many cases, the loans sold to GSEs are used as collateral for mortgage-backed securities issued and guaranteed by GSEs and traded in the open market.  Mortgage loans held for sale can differ widely from period to period depending on the timing and size of originated mortgages and variances in holding periods prior to sale.  Loans closed and funded during the three months ended March 31, 2012 were $255.0 million.  Loans sold and settled during the three months ended March 31, 2012 were $361.4 million.

- 21 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

B. Mortgage Loans Held for Investment

Mortgage loans held for investment are made up primarily of promissory notes that we hold net of any reserve for uncollectibility.

C. Stabilization Escrow

In connection with management’s strategy to manage the risks arising from the operations of certain Tax Credit Property Partnerships (see Affordable Housing Transactions in Note 21), we expect the remaining cash balance of $39.6 million to be used to restructure the debt of those Tax Credit Property Partnerships.  Accordingly, it was fully reserved.

NOTE 7 – Mortgage Servicing Rights, Net
The components of the change in MSRs and related reserves were as follows:
		(in thousands)
	Balance at January 1, 2011	$	65,614
	MSRs capitalized		3,634
	Amortization		(2,760)
	Balance at March 31, 2011	$	66,488
	Balance at January 1, 2012	$	72,520
	MSRs capitalized		5,779
	Amortization		(3,196)
	Balance at March 31, 2012	$	75,103

While the balances above reflect our policy to record MSRs initially at fair value and amortize those amounts, presented below is information regarding the fair value of the MSRs.  The fair value and significant assumptions used in estimating it are as follows:

	March 31,			December 31,
	2012			2011
Fair value of MSRs	$	82,040		$	78,814
Weighted average discount rate		17.67	%		17.64	%
Weighted average pre-pay speed		9.49	%		9.50	%
Weighted average lockout period (years)		4.1			4.1
Weighted average default rate		0.95	%		0.72	%
Cost to service loans	$	2,472		$	2,284
Acquisition cost (per loan)	$	1,486		$	1,484

- 22 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The table below illustrates hypothetical fair values of MSRs, caused by assumed immediate changes to key assumptions that are used to determine fair value.

		March 31,
(in thousands)		2012
Fair value of MSRs		$	82,040
Prepayment speed:
	Fair value after impact of 10% adverse change		81,390
	Fair value after impact of 20% adverse change		80,772
Discount rate:
	Fair value after impact of 10% adverse change		78,041
	Fair value after impact of 20% adverse change		74,418
Default rate:
	Fair value after impact of 10% adverse change		81,937
	Fair value after impact of 20% adverse change		81,827

These sensitivities are hypothetical changes in fair value and cannot be extrapolated because the relationship of the changes in assumption to the changes in fair value may not be linear.  Also, the effect of a variation in a particular assumption is calculated without changing any other assumption, whereas change in one factor may result in changes to another.  Accordingly, no assurance can be given that actual results would be consistent with the results of these estimates.

Servicing fees we earned as well as those received with respect to the December 2007 re-securitization transaction (all of which are included in “Fee Income” in our Condensed Consolidated Statements of Operations) were as follows:

		Three Months Ended
		March 31,
(in thousands)		2012		2011
Total servicing fees		$	6,348	$	5,880
Servicing fees from securitized assets
	(included in Total servicing fees)	$	524	$	540

NOTE 8 – Deferred Costs and Other Assets, Net
The table below provides the components of deferred costs and other assets, net as of the dates presented:
			March 31,		December 31,
	(in thousands)		2012		2011
	Deferred financing and other costs(1)		$	11,140	$	11,854
	Less:  Accumulated amortization			(4,348)		(4,041)
	Net deferred costs			6,792		7,813
	Collateral posted with counterparties			44,198		44,763
	Interest and fees receivable, net			5,550		6,102
	Other receivables			6,917		6,443
	Furniture, fixtures and leasehold improvements, net			4,159		3,926
	Other			7,725		6,744
		Total	$	75,341	$	75,791

(1) Excludes items included in deferred financing and other costs that have been fully amortized.

- 23 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 9 – Consolidated Partnerships

The Company, through its Affordable Housing Equity segment, originates and manages Tax Credit Fund Partnerships.  The Company, through one of its affiliates, controls special limited partnership (“SLP”) interests in each of the Tax Credit Property Partnerships acquired by the Tax Credit Fund Partnerships.  In our role as SLP, we are able to remove the existing general partner from the Tax Credit Property Partnerships and assume control only for due cause related to the nonperformance of the general partner.  The Tax Credit Fund Partnerships and Tax Credit Property Partnerships, in which the Company has a substantive controlling general partner or managing member interest or in which it has concluded it is the primary beneficiary of a variable interest entity (“VIE”), are being consolidated although the Company has practically no economic interest in such entities.  These Tax Credit Fund Partnerships and Tax Credit Property Partnerships are included within our Consolidated Partnerships.

The analysis as to whether the entity is a VIE and whether we consolidate it is subject to significant judgment.  Some of the criteria we are required to consider include, among others, determination of the degree of control over an entity by its various equity holders, design of the entity, relationships between equity holders, determination of the primary beneficiary and the ability to replace general partners.

Financial information presented for certain of the Tax Credit Fund Partnerships and Tax Credit Property Partnerships is as of December 31, 2011 and September 30, 2011 and the three months ended December 31, 2011 and 2010, the most recent date for which information is available.

Assets, liabilities and equity of Consolidated Partnerships consist of the following:

			March 31,		December 31,
(in thousands)			2012		2011
Assets:
	Equity interests in Tax Credit Property Partnerships		$	2,889,695	$	3,079,803
	Land, buildings and improvements, net			435,830		460,804
	Other assets			268,043		264,437
		Total assets	$	3,593,568	$	3,805,044
Liabilities:
	Notes payable		$	137,970	$	156,643
	Due to Tax Credit Property Partnerships			122,435		132,246
	Other liabilities			324,957		319,256
		Total liabilities	$	585,362	$	608,145
Net eliminations(1)				562,575		557,444
Equity:
	Non-controlling interests			2,451,485		2,633,604
	Centerline Holding Company			(5,854)		5,851
		Total equity		2,445,631		2,639,455
		Total liabilities and equity	$	3,593,568	$	3,805,044
(1)		Reflects the impact on assets and liabilities for transactions eliminated between the Company and Consolidated Partnerships.

Consolidated Partnerships for the three months ended March 31, 2012, experienced a decrease in Tax Credit Property Partnerships of sixteen properties due to sale or foreclosure.  We also liquidated a public Tax Credit Fund Partnership during the first quarter of 2012.

Equity Interests in Tax Credit Property Partnerships

The Tax Credit Fund Partnerships invest in low-income housing property-level partnerships that generate tax credits and tax losses.  Neither we nor the Tax Credit Fund Partnerships control these Tax Credit Property Partnerships and, therefore, we do not consolidate them in our financial statements.  “Equity interests in Tax Credit Property Partnerships” represents the limited partner investments in those Tax Credit Property Partnerships, which the Tax Credit Fund Partnerships carry on the equity method of accounting.

- 24 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The reduction for the current period is due primarily to the equity losses of $193.7 million (primarily resulting from non-cash depreciation expense and impairments) recognized in the current period, the sale of Tax Credit Property Partnerships of $2.1 million, and cash distributions of $1.8 million to the limited partners, partially offset by an increase in investment in new Tax Credit Property Partnerships of $9.0 million.

Land, Buildings and Improvements, Net

Land, buildings and improvements are attributable to the Tax Credit Property Partnerships we consolidate as a result of gaining significant control over their general partner.  Land, buildings and improvements to be held and used are carried at cost which includes the purchase price, acquisition fees and expenses, construction period interest and any other costs incurred in acquiring and developing the properties.  The cost is depreciated over the estimated useful lives using primarily the straight-line method.  Expenditures for repairs and maintenance are charged to expense as incurred; major renewals and betterments are capitalized.  At the time of retirement and otherwise disposal, the cost (net of accumulated depreciation) and related liabilities are eliminated and the profit or loss on such disposition is reflected in earnings.

Land, buildings and improvements are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.  The determination of asset impairment is a two-step process.  First, the carrying amount of the asset is deemed not recoverable if it exceeds the sum of the undiscounted cash flows and the projected cash proceeds from the eventual sale of the asset.  If such estimates are below the carrying amount, the impairment loss is measured as the amount by which the carrying amount of the asset exceeds fair value, which is determined by a direct capitalization method by applying a capitalization rate obtained from market data for comparative investments to stabilized net operating income levels.

The decrease for the current period is primarily due to receivable reserve of $7.1 million between the Tax Credit Property Partnerships and the Tax Credit Fund Partnerships as a result of an increase in impairments recognized on equity investments and receivables due from the Tax Credit Property Partnerships, $13.3 million related to properties that were sold or foreclosed upon and current period depreciation of $5.5 million.  This was partially offset by net fixed asset additions of $0.9 million for certain properties during 2012.

Other Assets

Assets other than those discussed above include cash, fees and interest receivable, prepaid expenses and operating receivables of the funds.

Notes Payable

Notes payable pertain to mortgages and notes held at the Tax Credit Property Partnerships, as well as borrowings that bridge the time between when subscribed investments are received and when the funds deploy capital (“Bridge Loans”) for Tax Credit Fund Partnerships.

The decrease is primarily due to the sale of properties with mortgage balances of $17.6 million and repayments of mortgages of $0.9 million.  This was partially offset by additional borrowings by Tax Credit Property Partnerships of $5.2 million.

Due to Tax Credit Property Partnerships

The partnership agreements of the Tax Credit Property Partnerships stipulate the amount of capital to be funded and the timing of payments of that capital.  “Due to Tax Credit Property Partnerships” represents the unfunded portion of those capital commitments.  The decrease for the current period pertains to funding of capital commitments of $14.5 million to the Tax Credit Property Partnerships offset by property acquisitions by the Tax Credit Fund Partnerships increasing commitments by $5.4 million.

Other Liabilities

The increase in other liabilities is primarily due to fees accrued for the current period as well as a decrease in the elimination of other liabilities between Tax Credit Fund Partnerships and the Company.

- 25 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Revenues and expenses of Consolidated Partnerships consisted of the following:

		Three Months Ended
		March 31,
(in thousands)		2012		2011
Interest income, net		$	(1,357)	$	245
Rental income			28,739		25,923
Other revenues			195		90
Total revenues		$	27,577	$	26,258
Interest expense		$	5,072	$	4,661
Other expenses:
	Asset management fees		9,558		10,378
	Property operating expenses		10,652		9,703
	General and administrative expenses		10,625		8,987
	Depreciation and amortization		14,834		12,364
	Other		14,742		4,401
	Total other expenses		60,411		45,833
Total expenses		$	65,483	$	50,494
Other losses from consolidated partnerships, net		$	(153,364)	$	(61,441)
Net loss			(191,270)		(85,677)
Net eliminations(1)			(14,158)		(17,105)
Net loss attributable to non-controlling interests			(205,426)		(102,780)
Net loss attributable to Centerline Holding Company shareholders		$	(2)	$	(2)
(1)	Reflects the transactions eliminated between the Company and Consolidated Partnerships.

Interest income, net reflects accrued interest recorded on the loans issued to Tax Credit Property Partnerships relating to property advances offset by interest income reversals of $2.4 million and $0.7 million during the three months ended March 31, 2012 and 2011, respectively.  The interest income reversals relate to previously accrued interest which has been deemed to be uncollectible.

Other expenses increased for the three months ended March 31, 2012, primarily due to an increase of $7.5 million in the provision for bad debt and an increase of $2.2 million in fees related to property dispositions.  In addition, in 2011, a property was sold that resulted in the recognition of a forgiveness of debt of $1.7 million.

Other losses principally represent the equity losses that Tax Credit Fund Partnerships recognize in connection with their investments in non-consolidated Tax Credit Property Partnerships.  The increase in losses during the three months ended March 31, 2012 primarily resulted from an increase of $116.8 million related to impairments recognized on Tax Credit Property Partnership equity investments,  an increase of $5.7 million in expenses recognized by certain Tax Credit Property Partnerships pertaining to the change in value of their interest rate derivatives and an increase of approximately $4.9 million of losses due to properties being sold or foreclosed during 2012, offset by a decrease of $30.1 million in recognized gains, net of losses on the sale of property investments during 2012 and a reduction of $8.8 million in suspended losses for Tax Credit Fund Partnerships whose investment balances in certain Tax Credit Property Partnerships have reached zero.

- 26 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 10 – Notes Payable and Other Borrowings
The table below provides the components of notes payable and other borrowings as of the dates presented:
			Interest Rate
			at March 31,			March 31,		December 31,
	(in thousands)		2012			2012		2011
	Term loan			3.24	%	$	122,037	$	125,014
	Revolving credit facility			3.24			14,300		12,100
	Mortgage Banking warehouse facilities			2.79			48,676		105,615
	Mortgage Banking repurchase facilities			-			-		8,450
	Multifamily ASAP facility			1.84			33,437		71,670
		Total				$	218,450	$	322,849

A. Term Loan and Revolving Credit Facility

Our Term Loan matures in March 2017 and has an interest rate of 3.00% over either the prime rate or LIBOR at our election (which currently is LIBOR).  We must repay $2.98 million in principal per quarter until maturity, at which time the remaining principal is due.

The Revolving Credit Facility has a total capacity of $37.0 million.  The Revolving Credit Facility matures in March 2015 and bears interest at 3.00% over either the prime rate or LIBOR at our election (which currently is LIBOR).  The Revolving Credit Facility may be used for LIHTC property investments. As of March 31, 2012, $14.3 million was drawn and $13.8 million in letters of credit were issued under the Revolving Credit Facility.  Once terminated, the amount of the Revolving Credit Facility associated with these letters of credit cannot be redrawn.  At March 31, 2012, the undrawn balance of the Revolving Credit Facility was $8.9 million.

The Revolving Credit Facility has the following customary financial covenants:

·   minimum ratio of consolidated EBITDA to fixed charges, which became effective for us as of June 30, 2011; and

·   maximum ratio of funded debt to consolidated EBITDA, which will become effective for us as of June 30, 2012.

The Term Loan and Revolving Credit Facility agreement (as subsequently amended, the “Credit Agreement”) contains restrictions on distributions.  Under the Credit Agreement, we generally are not permitted to make any distributions or redeem or purchase any of our shares, including Convertible CRA Shares, except in certain circumstances, such as distributions to the holders of preferred shares of Equity Issuer, a subsidiary of the Company, if and to the extent that such distributions are made solely out of funds received from Freddie Mac as contemplated by a specified transaction (“EIT Preferred Share Distributions”).

In 2011 we entered into a waiver to the Credit Agreement (the “Waiver”) and two subsequent amendments to the Waiver, which among other things, added covenants to the Credit Agreement that restrict (x) the use of proceeds drawn from our Revolving Credit Facility solely to LIHTC investments, (y) contracts and transactions with Island Centerline Manager LLC, an entity owned and operated by a subsidiary of Island Capital (collectively “Island”), TRCLP, and C-III and their affiliates, subject to certain carve-outs, and (z) other specified material and non-ordinary course contracts and transactions, including property management contracts with Island, TRCLP and C-III and their affiliates.

On February 28, 2012, we entered into a third amendment to the waiver to our Credit Agreement, which among other things:

·   extended the deadline by which we were required to deliver certain specified financial data and other information to the administrative agent under the Credit Facility and, in certain cases, to the lenders under the Credit Agreement;

·   included certain conditions subsequent requiring us to deliver additional specified financial data and other information to the administrative agent by certain dates;

·   granted a waiver of our noncompliance with the Credit Agreement’s consolidated EBITDA to fixed charges ratio solely with respect to the quarter ended December 31, 2011, although we have determined that we were in compliance with such ratio with respect to the quarter ended December 31, 2011;

- 27 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

·   required us to pay certain costs and expenses incurred by the administrative agent in administering the Credit Agreement; and

·   requires us to pay prescribed monthly consulting fees to the administrative agent’s consultant.

B. Mortgage Banking Warehouse Facilities

We have five warehouse facilities that we use to fund our loan originations. Mortgages financed by these facilities (see Note 6), as well as the related servicing and other rights (see Note 7) have been pledged as security under these warehouse facilities.  All loans securing these facilities have firm sale commitments with GSEs or the Federal Housing Administration (“FHA”).  Our warehouse facilities are as follows:

·   We have a $100 million committed warehouse facility that matures in September 2012 and bears interest at a rate of LIBOR plus 2.50%.  The interest rate on the warehouse facility was 2.74% as of March 31, 2012 and 2.80% as of December 31, 2011.

·   We have a $50 million committed warehouse facility that matures in November 2012 and bears interest at a rate of LIBOR plus a minimum of 2.75% and a maximum of 4.25%. The interest rate on the warehouse facility was 2.99% as of March 31, 2012 and 3.05% as of December 31, 2011.

·   We have two uncommitted warehouse repurchase facilities that provide us with additional resources for warehousing of mortgage loans with Freddie Mac and Fannie Mae.  These agreements are scheduled to mature on November 16, 2012 and bear interest at a rate of LIBOR plus 3.50% with a minimum of 4.50% for all Fannie Mae loans and 4.00% for all Freddie Mac loans.

·   We have an uncommitted facility with Fannie Mae under its Multifamily As Soon As Pooled (“ASAP”) Facility funding program.  After approval of certain loan documents, Fannie Mae will fund loans after closing and the advances are used to repay our warehouse facilities.  Subsequently, Fannie Mae funds approximately 99% of the loan and CMC funds the remaining 1%.  CMC is later reimbursed by Fannie Mae when the assets are sold.  Interest on this facility currently accrues at a rate of LIBOR plus 1.35% with a minimum rate of 1.70%.  The interest rate on this facility was 1.84% as of March 31, 2012 and 1.70% as of December 31, 2011.

We expect to renew the committed warehouse facilities annually, although any such renewal will be in the discretion of our warehouse lenders and subject to our compliance with the applicable covenants.

C. Centerline Financial Credit Facility

In June 2006, Centerline Financial entered into a senior credit agreement.  Under the terms of the agreement, Centerline Financial is permitted to borrow up to $30.0 million until its maturity in June 2036, if needed to meet payment or reimbursement requirements under the yield transactions of Centerline Financial (see Note 21).  Borrowings under the agreement will bear interest at our election of either:

·   LIBOR plus 0.40% or;

·   1.40% plus the higher of the prime rate or the federal funds effective rate plus 0.50%.

As of March 31, 2012, no amounts were borrowed under this facility and as a result we did not make an interest rate election.  Neither Centerline Holding Company nor its subsidiaries are guarantors of this facility.  Due to a wind-down event caused by a capital deficiency under the Centerline Financial operating agreement that occurred in 2010, the Centerline Financial senior credit facility is in default as of March 31, 2012.  Amounts under the Centerline Financial senior credit facility are still available to be drawn, and we do not believe this default has a material impact on our consolidated financial statements or operations.

Also as a result of the wind-down event, Centerline Financial is restricted from making any member distributions and is also restricted from engaging in any new business.

D. Covenants

We are subject to customary covenants with respect to our various notes payable and warehouse facilities.

As noted above, there is a declared default under our Centerline Financial senior credit facility.

- 28 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On May 18, 2012, we entered into a fourth amendment of the Waiver, which included a waiver of noncompliance with the Consolidated EBITDA to Fixed Charges Ratio covenant contained in our Credit Agreement with respect to the fiscal quarters ended September 30, 2011 and March 31, 2012 and a waiver of our noncompliance with a requirement that we provide the lenders under our Credit Agreement with certain 2012 projections that demonstrate compliance with the foregoing financial covenant. These waivers will expire on July 16, 2012 (see Note 22). Our ability to obtain any additional waivers or concessions from our lenders will be impacted by the continued satisfaction of our covenants and obligations under the Credit Agreement, including those requiring scheduled amortization payments, such as the payment due June 30, 2012. Should we not comply with the covenants and obligations in the Credit Agreement or our other loan agreements, our lenders have the right to declare a default and exercise their remedies, including acceleration of our debt obligations with them.  In addition, a default under our Credit Agreement would result in a cross default under our mortgage banking warehouse facilities.

Except as noted above, as of March 31, 2012, we believe we are in compliance with all other covenants contained in our credit facilities.

NOTE 11 – Secured Financing
The table below provides the secured financing as of the dates presented:
		March 31,		December 31,
	(in thousands)	2012		2011
	Freddie Mac secured financing	$	615,982	$	618,163

The Freddie Mac secured financing liability relates to mortgage revenue bonds that we re-securitized with Freddie Mac but for which the transaction was not recognized as a sale and relates to bonds that are within our “effective control” and, therefore, we may remove the bond from the securitization even if we do not intend to do so.  Such “effective control” may result when a subsidiary controls the general partner of the underlying Tax Credit Property Partnerships or may exercise the right to assume such control, or our role as servicer of the bonds would allow us to foreclose on a bond in default or special servicing.  The liability represents the fair value of the mortgage revenue bonds at the time at which sale treatment was precluded and the bonds were recorded on our balance sheet.

The decrease in this balance during the three months ended March 31, 2012 is primarily due to an underlying mortgage revenue bond being paid in full.   

NOTE 12 – Accounts Payable, Accrued Expenses and Other Liabilities
Accounts payable, accrued expenses and other liabilities consisted of the following:
			March 31,		December 31,
	(in thousands)		2012		2011
	Deferred revenues		$	33,086	$	34,614
	Allowance for risk-sharing obligations (Note 21)			21,715		21,715
	Affordable Housing loss reserve			31,700		32,300
	Accrued expenses			5,048		5,583
	Accounts payable			1,453		1,545
	Accrued credit intermediation assumption fees			29,706		28,795
	Interest rate derivatives (Note 18)			27,796		28,737
	Salaries and benefits payable			8,453		15,067
	Accrued interest payable			4,465		4,546
	Lease termination costs and deferred rent			7,283		4,158
	Other			8,697		10,170
		Total	$	179,402	$	187,230

- 29 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

A. Deferred Revenues

In connection with our Affordable Housing tax credit fund origination and management businesses, we receive revenues at the time a fund closes associated with origination, property acquisitions, partnership management services and credit intermediation. These fees are deferred and recognized over various periods. As we did not close new Tax Credit Fund Partnerships during 2012 we did not collect any additional revenues, while we continued to recognize revenues which we previously deferred. Therefore, deferred revenues have decreased.

B. Affordable Housing Loss Reserve

In 2011, as we worked with parties that have an economic interest in the properties that secure mortgage revenue bonds associated with our credit intermediation agreements, we estimated the payments that were required to be made in order to complete the restructuring and reduce the principal balance of certain mortgage revenue bonds at levels below the amounts reached in the March 2010 agreements with such counterparties.  Changes to the reserve in 2012 reflect revisions to the assumed timing of the restructurings (see further discussion in Note 21 under Loss Reserve Relating to Yield Transactions).

C. Accrued Credit Intermediation Assumption Fees

The accrued credit intermediation assumption fees of $29.7 million relate to the restructuring of certain credit intermediation agreements and are due upon the termination of certain yield transactions.  The fees are calculated as 50% of the value of the collateral securing Guaranteed Holdings’ obligations under these yield transactions but not to exceed $42.0 million.  The increase during 2012 is a result of the increase in the collateral securing Guaranteed Holding’s obligations under yield transactions (see Note 21).

D. Interest Rate Derivatives

The decrease in interest rate derivatives during 2012 is due to favorable changes in the fair value of our free-standing derivatives as the market expectation of future Securities Industry and Financial Markets Association (‘SIFMA”) rates increased.

E. Lease Termination Costs and Deferred Rent

The increase in lease termination costs and deferred rent during the first quarter of 2012 is mainly due to the Surrender Agreement and the cease use of the remainder of our former headquarters at 625 Madison Avenue.

NOTE 13 - Redeemable Securities
The table below provides the components of redeemable securities as of the dates presented:
(in thousands)	March 31, 2012				December 31, 2011
				Number of				Number of
				Common				Common
	Carrying		Number of	Shares if	Carrying		Number of	Shares if
Series	Value		Shares	converted	Value		Shares	converted
Convertible CRA Shares	$	6,000	320	320	$	6,000	320	320

As of March 31, 2012, we had 320,291 Convertible CRA Shares outstanding.  As we had not repurchased these Convertible CRA Shares as of January 1, 2012, the holders of the Convertible CRA Shares have the option to require us to purchase the Convertible CRA Shares for the original gross issuance price per share, which totaled approximately $6.0 million as of March 31, 2012.  Pursuant to the terms of the Credit Agreement, we are restricted from meeting this requirement.  A holder (the “Convertible CRA Shareholder”) of 214,247 Convertible CRA Shares (the “Option Shares”) exercised their option to require us to purchase the Option Shares for an aggregate purchase price of approximately $4.0 million on January 4, 2012.  Under the terms of the option agreement, we were required to purchase the Option Shares by January 10, 2012.  Due to the terms of the Credit Agreement that restrict our ability to repurchase the Option Shares, we are currently in discussions with the Convertible CRA Shareholder in an effort to settle this obligation for an amount significantly less than $4.0 million.  We are also in discussions with the other remaining holder of Convertible CRA Shares to explore various ways to mitigate the above-referenced repurchase risk with respect to that holder.  Due to our contractual obligations to certain former holders of our Convertible CRA Shares (the “Former CRA Holders”), the settlement of our obligations to the current holders of Convertible CRA Shares may trigger payments to the Former CRA Holders that agreed to the redemption of their Convertible CRA Shares on terms less favorable than those that are provided to the current holders of Convertible CRA Shares.

- 30 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Effective January 1, 2012, as we are required or may be required to purchase the Convertible CRA Shares if the holders exercise their option, we classified the Convertible CRA Shares as liabilities.

NOTE 14 – Non-controlling Interests
The table below provides the components of non-controlling interests as of the dates presented:
			March 31,		December 31,
	(in thousands)		2012		2011
	Limited partners interests in consolidated partnerships		$	2,451,485	$	2,633,604
	Preferred shares of a subsidiary (not subject to mandatory repurchase)(1)			104,000		104,000
	Convertible Special Common Units (“SCUs”) of a subsidiary; 11,867
		outstanding in 2012 and 2011		(82,356)		(82,356)
	Other(2)			9,928		9,912
	Total		$	2,483,057	$	2,665,160

(1)   For detail of the terms of these securities (as well as Preferred shares of a subsidiary (subject to mandatory repurchase)) refer to the 2011 Form 10-K.

(2)   “Other” non-controlling interests represent the 10.0% interest in Centerline Financial Holdings LLC (“CFin Holdings”) owned by Natixis Capital Markets North America Inc. (“Natixis”).

Loss (income) attributable to non-controlling interests was as follows:

		Three Months Ended
		March 31,
(in thousands)		2012		2011
Limited partners interests in consolidated partnerships		$	205,426	$	102,780
Preferred shares of a subsidiary (not subject to mandatory repurchase)			(1,556)		(1,556)
Other			(16)		(258)
	Total	$	203,854	$	100,966

- 31 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 15 – General and Administrative Expenses
The table below provides the components of general and administrative expenses for the periods presented:
				Three Months Ended
				March 31,
	(in thousands)			2012		2011
	Salaries and benefits			$	13,343	$	10,868
	Other:
		Credit intermediation assumption and other fees			1,039		1,450
		Professional fees			3,838		2,579
		Site visits and acquisition fees			1,367		1,297
		Advisory fees			1,250		1,250
		Subservicing fees			1,803		1,690
		Rent expense			963		1,352
		Miscellaneous			3,699		3,092
			Total	$	27,302	$	23,578

A. Salaries and Benefits

Salaries and benefits increased primarily due to our initiative to expand our Affordable Housing Debt platform and to increase our mortgage origination and underwriting production volume by hiring additional employees in certain geographical locations nationwide.

B. Professional fees

Professional fees increased primarily due to legal fees that we incurred and advisory fees that we were required to reimburse to our lenders relating to the third amendment to our Credit Agreement in which we entered during the first quarter of 2012.

C. Advisory Fees

We have an advisory agreement with Island Centerline Manager LLC, an entity owned and operated by a subsidiary of Island Capital (collectively “Island”), whereby it provides us with strategic and general advisory services.  Pursuant to the agreement, we are paying a $5.0 million annual base advisory fee, payable in quarterly installments of $1.25 million (see also Note 19).

NOTE 16 – Provision for (Recovery of) Losses
The table below provides the components of the provision for (recovery of) losses for the periods presented:
			Three Months Ended
			March 31,
	(in thousands)		2012		2011
	Affordable Housing loss reserve recovery (see Note 21)		$	(600)	$	(5,500)
	Provision for risk-sharing obligations (see Note 21)			-		238
	Lease termination costs			3,318		-
	Bad debt reserves			3,287		2,473
		Total	$	6,005	$	(2,789)

A. Affordable Housing Loss Reserve Recovery

In 2011, as we worked with parties that have an economic interest in the properties that secure mortgage revenue bonds associated with our credit intermediation agreements, we estimated the payments that were required to be made in order to complete the restructuring and reduce the principal balance of certain mortgage revenue bonds at levels below the amounts reached in the March 2010 agreements with such counterparties.  Changes to the reserve in 2012 reflect revisions to the assumed timing of the restructurings (see further discussion in Note 21 under Loss Reserve Relating to Yield Transactions).

- 32 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

B. Lease Termination Costs

In connection with the Surrender Agreement relating to our former New York headquarters at 625 Madison Avenue, in February 2012 we ceased use of the remainder of the space as required per the Surrender Agreement. Simultaneously, we moved to our new headquarters at 100 Church Street. At that time, we recorded net lease termination costs of $3.3 million.

C. Bad Debt Reserves

We advance funds to Tax Credit Fund Partnerships to allow them to make supplemental loans to Tax Credit Property Partnerships in which they invest as well as to fund operating shortfalls of the fund. Bad debt reserves represent advances we do not expect to collect. During the first quarter of 2012 and 2011, we recorded a reserve of $3.3 million and $2.5 million, respectively against these advances to Tax Credit Fund Partnerships.

NOTE 17 - Earnings per Share
The calculation of basic and diluted net loss per share is as follows:
			Three Months Ended March 31,
			2012		2011
			Continuing		Continuing		Discontinued
(in thousands, except per share amounts)			Operations		Operations		Operations
Numerator:
	Net (loss) income attributable to Centerline Holding Company
		shareholders	$	(5,399)	$	509	$	253
	Undistributed (loss) income attributable to Centerline Holding
		Company shareholders		(5,399)		509		253
	Undistributed earnings attributable to redeemable
		securities	$	-		(1)		-
	Effect of redeemable share conversions			-		(113)		-
	Net (loss) income attributable to Centerline Holding Company
		shareholders used for EPS calculations – basic	$	(5,399)	$	395	$	253
	Net (loss) income attributable to Centerline Holding Company
		shareholders used for EPS calculations – diluted	$	(5,399)	$	395	$	253
Denominator:
	Weighted average shares outstanding
		Basic		349,166		348,647		348,647
		Effect of dilutive shares		-		621		621
		Diluted		349,166		349,268		349,268
Calculation of EPS:
	Net (loss) income attributable to Centerline Holding Company
		shareholders – basic	$	(5,399)	$	395	$	253
	Weighted average shares outstanding – basic			349,166		348,647		348,647
	Net (loss) income per share attributable to Centerline Holding
		Company shareholders – basic	$	(0.02)	$	- (1)	$	- (1)
	Net (loss) income attributable to Centerline Holding Company
		shareholders – diluted	$	(5,399)	$	395	$	253
	Weighted average shares outstanding –diluted			349,166		349,268		349,268
	Net (loss) income per share attributable to Centerline Holding
		Company shareholders – diluted	$	(0.02)	$	- (1)	$	- (1)
(1)		Amount calculates to zero when rounded.

- 33 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 18 – Financial Risk Management and Derivatives

A. General

The Company is exposed to financial risks arising from our business operations and economic conditions. We manage interest-rate risk by hedging. We evaluate our interest-rate risk on an ongoing basis to determine if it would be advantageous to engage in any additional derivative transactions. We do not use derivatives for speculative purposes. We manage liquidity risk by extending term and maturity on debt, by reducing the amount of debt outstanding, and by producing cash flow from operations. We manage credit risk by developing and implementing strong credit and underwriting procedures.

B. Derivative Positions

As of March 31, 2012, we held the following derivative positions:

·   We were party to 17 interest rate derivative agreements with the developers of properties relating to certain mortgage revenue bonds we previously owned. We entered into these derivative agreements to effectively convert the fixed rate of interest (per the terms of the mortgage revenue bond) to a variable rate. Under the terms of these agreements, we pay fixed interest rates equal to those of the related bonds and receive interest at a variable rate (based on the SIFMA index). Since the December 2007 re-securitization transaction, these derivatives are now deemed to be free-standing derivatives. At March 31, 2012, these derivatives had an aggregate notional amount of $157.6 million, a weighted average interest rate of 5.76% and a weighted average remaining term of 10.7 years.

·   Our Affordable Housing Equity segment is party to an interest rate derivative whereby we pay a variable rate of interest (based on the SIFMA index) and receive interest at a fixed rate of 3.83%.  This derivative is a free-standing derivative.  At March 31, 2012, the derivative had a notional amount of $9.5 million, with a variable interest rate of 1.68% payable to a third party and remaining term of 11.2 years.

Quantitative information regarding the derivatives to which we are or were a party (including those agreements on behalf of Consolidated Partnerships) is detailed below.

C. Financial Statement Impact

Interest rate derivatives 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.  None of the derivatives were designated as hedges as of the dates presented.  The amounts recorded are as follows:

	March 31,		December 31,
(in thousands)	2012		2011
Net liability position	$	27,796	$	28,737
Net asset position		1,397		1,488

Presented below are amounts included in interest expense in the Condensed Consolidated Statements of Operations related to the derivatives described above:

	Three Months Ended
	March 31,
(in thousands)	2012		2011
Not designated as hedges:
Interest payments	$	2,518	$	2,519
Interest receipts		(922)		(981)
Change in fair value		(850)		(703)
Included in interest expense	$	746	$	835

- 34 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 19 – Related Party Transactions
Investments in and Loans to Affiliates
The table below provides the components of investments in and loans to affiliates as of the dates presented:
			March 31,		December 31,
	(in thousands)		2012		2011
	Fund advances related to Tax Credit Property Partnerships, net(1)		$	65,828	$	64,067
	Advances to Tax Credit Fund Partnerships, net			2,247		1,871
	Fees receivable and other, net			23,869		29,166
		Subtotal		91,944		95,104
		Less: Eliminations(2)		(85,974)		(89,463)
		Total	$	5,970	$	5,641

(1) Net of reserves of $41.5 million at March 31, 2012 and $38.5 million at December 31, 2011.

(2) For management purposes, we treat Consolidated Partnerships as equity investments in evaluating our results.  As we consolidate the funds, we eliminate the investments for presentation in the condensed consolidated financial statements.  In addition, any fees or advances receivable from Consolidated Partnerships are eliminated in consolidation.

Impact to Statements of Operations
Our Condensed Consolidated Statements of Operations included the following amounts pertaining to related party transactions:
		Included in following line item		Three Months Ended
		on Condensed Consolidated		March 31,
(in thousands)		Statements of Operations		2012		2011
Expenses for advisory services provided by Island and procedures		General and Administrative		$	1,250	$	2,137
	review payments made to Island
Expenses for subservicing of and net referral fees for mortgage loans		General and Administrative			1,787		1,863
	by C-III Capital Partners, LLC (“C-III”)
Transition services charged to C-III, net		General and Administrative			15		(37)
Sublease charges to C-III		General and Administrative			(398)		(410)
Expenses for consulting and advisory services provided by		General and Administrative			40		40
	The Related Companies LP (“TRCLP”)
Expenses for property management services provided by TRCLP		Other Losses from Consolidated			1,659		1,480
			Partnerships
Net interest rate derivative payments to property developers controlled		Interest Expense			643		630
	by TRCLP

A. Island Centerline Manager LLC (the “Advisor”) and C-III

We have an advisory agreement with Island.  The agreement provides for an initial five year term and, subject to a fairness review of advisory fees, for successive one year renewal terms.  Pursuant to the agreement:

·   Island will provide strategic and general advisory services to us; and

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CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

·   we paid $5.0 million for procedures review fees over a 12 month period from the date of the agreement for certain fund management review services. We have also paid and will pay a $5.0 million annual base advisory fee and will pay an annual incentive fee if and once certain EBITDA thresholds are met (as defined in the agreement).

The agreement provides each party with various rights of termination, which in our case under certain circumstances would require the payment of a termination fee in an amount equal to three times the base and incentive fee earned during the previous year.

We have subservicing agreements with C-III pursuant to which C-III agreed to service and administer mortgage loans on our behalf. During the three months ended March 31, 2012 and 2011, we paid a total amount of $1.8 million and $1.7 million, respectively for these services. In addition, during the three months ended March 31, 2011 we paid C-III referral fees for mortgage loans financed by us for borrowers referred to us by C-III, net of fees received for referrals made by us to C-III, in the amount of $0.2 million.

We have a sublease agreement with C-III for the leased space in Irving, Texas that we occupied in the past and which has been used by C-III since March 2010.

B. The Related Companies L.P.

A subsidiary of TRCLP earned fees for performing property management services for various properties held in Tax Credit Fund Partnerships we manage.

In addition, in March 2010 another affiliate of TRCLP entered into a loan agreement with our lenders (the “TRCLP Loan Agreement”) pursuant to which it assumed $5.0 million of our debt outstanding under our Term Loan and Revolving Credit Facility (the “TRCLP Indebtedness”) in connection with CCG’s entering into a consulting and advisory agreement with the TRCLP affiliate (the “TRCLP Consultant”).

Pursuant to the consulting and advisory agreement, the TRCLP Consultant performs certain consulting and advisory services in consideration for which CCG granted the TRCLP Consultant, among other things, certain rights of first refusal and first offer with respect to the transfer of real property owned by a Tax Credit Property Partnership controlled by CCG as well as the transfer of equity interests in Tax Credit Property Partnerships and agreed to pay the TRCLP Consultant certain fees and expenses.  The fee payable by CCG to the TRCLP Consultant is payable quarterly in an amount equal to the interest incurred on the TRCLP Indebtedness for such quarter, which is LIBOR plus 3.00%.  The consulting and advisory agreement has a three-year term and automatically renews for one year terms unless CCG provides timely written notice of non-renewal to the TRCLP Consultant.

The consulting and advisory agreement is terminable by CCG and the TRCLP Consultant by mutual consent as specified in the consulting and advisory agreement.  If the consulting and advisory agreement is terminated by CCG due to a change of control of the Company, CCG is obligated to pay the TRCLP Consultant a termination fee in the amount of the fair market value of the TRCLP Consultant’s remaining rights under the consulting and advisory agreement determined in accordance with procedures specified in the agreement.  If the consulting and advisory agreement is terminated by CCG because the TRCLP Consultant or any of its affiliates engaged in a specified competitive business, the Company or CCG would assume all obligations under the TRCLP Loan Agreement and indemnify the TRCLP Consultant and its affiliates for any loss, cost and expense incurred from and after the date of such assumption.

If CCG and the TRCLP Consultant mutually agree to terminate the consulting and advisory agreement, each party (and certain of their respective affiliates) would be obligated to pay 50% of the outstanding obligations under the TRCLP Indebtedness.  If the TRCLP Consultant terminates the consulting and advisory agreement by prior written notice to CCG absent a continuing default by CCG, the TRCLP Consultant and certain of its affiliates would be obligated to pay the outstanding obligations under the TRCLP Loan Agreement.  If the TRCLP Consultant terminates the consulting and advisory agreement in the event of a continuing default under the agreement by CCG, the Company and CCG would be jointly and severally obligated to pay the outstanding obligations under the TRCLP Loan Agreement.  If CCG terminates the consulting and advisory agreement in the event of a continuing default under the agreement by the TRCLP Consultant or in the event the TRCLP Consultant has not reasonably performed its duties under the agreement, the TRCLP Consultant and certain of its affiliates would be jointly and severally obligated to pay the outstanding obligations under the TRCLP Loan Agreement.  If CCG terminates the consulting and advisory agreement in the event of a change in control of the Company or in the event the TRCLP Consultant or any of its affiliates enters into specified competitive businesses, the Company and CCG would be jointly and severally obligated to pay the outstanding obligations under the TRCLP Loan Agreement.

The $5.0 million of debt assumed by TRCLP was recorded as an extinguishment of debt for which we deferred a $5.0 million gain. The deferred gain will be recognized into income over the life of the consulting agreement as payments of the assumed debt are made by TRCLP.  As of March 31, 2012 and December 31, 2011, the unrecognized balance was $4.97 million.  This amount is included in “Deferred revenues” within “Accounts payable, accrued expense and other liabilities” on our Condensed Consolidated Balance Sheets.

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CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

C. Fund Advances Related to Tax Credit Property Partnerships, Net

Fund advances related to Tax Credit Property Partnerships represent monies we loaned to certain Tax Credit Fund Partnerships to allow them to provide financial support to Tax Credit Property Partnerships in which they invest. We expect the Tax Credit Fund Partnerships will repay those loans from the release of reserves, proceeds from asset sales and other operating sources. Fund advances we made (net of reserves) were $4.8 million in the first quarter of 2012 and $3.3 million in the first quarter of 2011. In connection with the restructuring of certain credit intermediation agreements in 2010, certain of these fund advances were contributed to our Guaranteed Holdings and CFin Holdings subsidiaries (See Tax Credit Property Partnerships in Note 21).

D. Other

Substantially all fund origination revenues in the Affordable Housing Equity segment are received from Tax Credit Fund Partnerships we have originated and manage, many of which comprise the partnerships that we consolidate. While our affiliates 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.

NOTE 20 – Business Segments

Business segment results include all direct and contractual revenues and expenses of each business segment and allocations of certain indirect expenses based on specific methodologies.  These reportable business segments are strategic business units that primarily generate revenue streams that are distinctly different from one another and are managed separately.  Transactions between business segments are accounted for as third-party arrangements for the purposes of presenting business segment results of operations.  Typical intersegment eliminations include fees earned from Consolidated Partnerships and intercompany interest.

Prior period business segment results were reclassified to reflect the presentation of Affordable Housing Equity, Affordable Housing Debt and Asset Management as reportable segments in 2011 and the Company’s 2011 decision to allocate certain Corporate overhead, such as Human Resources, Information Technology, and Finance and Accounting to the Affordable Housing Equity, Affordable Housing Debt, Mortgage Banking and Asset Management segments.

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CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

			Three Months Ended March 31, 2012
			Affordable		Affordable
			Housing		Housing		Mortgage		Asset				Consolidated
(in thousands)			Equity		Debt		Banking		Management		Corporate		Partnerships		Total
Revenues
	Interest income		$	1,178	$	18,699	$	813	$	-	$	4	$	(1,357)	$	19,337
	Non-interest income			7,339		3,728		15,562		5,719		122		28,934		61,404
Total Revenues			$	8,517	$	22,427	$	16,375	$	5,719	$	126	$	27,577	$	80,741
Expenses
	Interest expense		$	287	$	11,703	$	437	$	-	$	1,229	$	13,549	$	27,205
	G&A expense			7,682		3,585		7,823		2,535		11,705		-		33,330
	Provision for losses			2,687		-		-		-		3,318		-		6,005
	Depreciation and amortization			33		330		3,146		36		314		-		3,859
	Other expense			-		-		-		-		-		66,092		66,092
Total Expenses			$	10,689	$	15,618	$	11,406	$	2,571	$	16,566	$	79,641	$	136,491
Other income(loss)				-		-		-		-		-		(153,364)		(153,364)
Income tax provision				-		-		-		-		(60)		-		(60)
Net (loss) income - continuing operations				(2,172)		6,809		4,969		3,148		(16,500)		(205,428)		(209,174)
Net income (loss) attributable to non-controlling interests				16		1,556		-		-		-		(205,426)		(203,854)
Intersegment expense allocations				2,828		3,416		3,497		3,769		(13,510)		-		-
Net (loss) income attributable to
	Centerline Holding Company Shareholders –
		continuing operations	$	(5,016)	$	1,837	$	1,472	$	(621)	$	(2,990)	$	(2)	$	(5,320)
Below is the reconciliation of the segment results to the consolidated results:
Net loss from reportable segments			$	(5,320)
	Reconciliation items
		Interest income		(8,558)
		Non-interest income		(11,732)
		Interest expense		8,502
		Non-interest expense		11,709
Consolidated Net loss attributable to
	Centerline Holding Company shareholders		$	(5,399)

- 38 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

			Three Months Ended March 31, 2011
			Affordable		Affordable
			Housing		Housing		Mortgage		Asset				Consolidated
(in thousands)			Equity		Debt		Banking		Management		Corporate		Partnerships		Total
Revenues
	Interest income		$	657	$	14,702	$	808	$	-	$	17	$	245	$	16,429
	Non-interest income			10,709		2,065		10,897		5,930		101		26,013		55,715
Total Revenues			$	11,366	$	16,767	$	11,705	$	5,930	$	118	$	26,258	$	72,144
Expenses
	Interest expense		$	803	$	12,336	$	249	$	-	$	1,297	$	12,916	$	27,601
	G&A expense			9,197		2,192		5,206		2,401		10,791		-		29,787
	(Recovery of)/provision for losses			(3,029)		238		-		-		-		-		(2,791)
	Depreciation and amortization			41		280		2,731		54		440		-		3,546
	Other expense			-		-		-		-		-		54,683		54,683
Total Expenses			$	7,012	$	15,046	$	8,186	$	2,455	$	12,528	$	67,599	$	112,826
Other income(loss)				-		-		-		-		1,756		(61,441)		(59,685)
Income tax provision				-		-		-		-		(193)		-		(193)
Net income (loss) - continuing operations				4,354		1,721		3,519		3,475		(10,847)		(102,782)		(100,560)
Net income (loss) attributable to non-controlling interests				671		1,556		-		-		(413)		(102,780)		(100,966)
Intersegment expense allocations				2,184		1,936		2,473		3,086		(9,679)		-		-
Net income (loss) attributable to
	Centerline Holding Company Shareholders –
	continuing operations		$	1,499	$	(1,771)	$	1,046	$	389	$	(755)	$	(2)	$	406
Below is the reconciliation of the segment results to the consolidated results:
Net income from reportable segments			$	406
	Reconciliation items
		Interest income		(8,357)
		Non-interest income		(15,078)
		Interest expense		8,481
		Non-interest expense		15,057
		Net income attributable to CHC-shareholders - discontinued operations		253
Consolidated Net income attributable to
	Centerline Holding Company shareholders		$	762

NOTE 21 – Commitments and Contingencies

A. Affordable Housing Transactions

Yield Transactions

Through the isolated special purpose entities described below, 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 to third-party investors for pools of multifamily properties in certain Tax Credit Fund Partnerships.  In return, we have received, or will receive fees, generally at the start of each credit intermediation period.  There are a total of 20 outstanding agreements to provide the specified returns through the construction and lease-up phases and through the operating phase of the properties.

Total potential exposure pursuant to these credit intermediation agreements at March 31, 2012  is $1.2 billion, assuming the Tax Credit Fund Partnerships achieve no return whatsoever beyond the March 31, 2012 measurement date (assuming that all underlying properties fail and are foreclosed upon, causing us to invoke the “calamity call” provision in each fund on March 31, 2012).  Of these totals:

·   Five of the agreements (comprising $514.3 million of the total potential exposure) are with our subsidiary, Centerline Financial, an isolated special purpose entity wholly owned by CFin Holdings.

·   Seven of the agreements (comprising $374.8 million of the total potential exposure) are with our subsidiary, CFin Holdings, an isolated special purpose entity owned 90% by CCG and 10% by Natixis.

·   Eight of the credit intermediation agreements (comprising $302.3 million of the total potential exposure) are with Guaranteed Holdings, an isolated special purpose entity and wholly owned subsidiary of CCG.

- 39 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In connection with the Master Novation, Stabilization, Assignment, Allocation, Servicing and Asset Management Agreement with Natixis (“Natixis Master Agreement”), all current and future voluntary loans, receivables, and SLP fees associated with all Natixis Credit Enhanced Funds are assigned to CFin Holdings (see Tax Credit Property Partnerships below).  As part of the Natixis Master Agreement, if certain conditions are met, we and Natixis have agreed to terms for the restructuring of certain bonds that were part of the Freddie Mac Re-securitization and Natixis has agreed to allow certain assets of CFin Holdings to be used for these bond restructurings.

In connection with the Merrill Master Agreement, CHC entered into a Reaffirmation of Guarantee in favor of Merrill Lynch whereby under certain circumstances CHC will indemnify Merrill Lynch for losses incurred under the yield transactions to the extent these losses are caused by events that occurred prior to the execution of the Merrill Master Agreement.  As part of the Merrill Master Agreement, if certain conditions are met, we have agreed to terms for the restructuring of certain bonds that were part of the December 2007 re-securitization with Freddie Mac and Merrill Lynch has agreed to allow certain assets of Guaranteed Holdings to be used for these bond restructurings.  In connection with the Merrill Master Agreement, we accrued $0.9 million and $1.4 million in credit intermediation assumption fees for the three months ended March 31, 2012 and 2011, respectively, included in “Accounts Payable, accrued expenses and other liabilities” on our Condensed Consolidated Balance Sheets and included in “Other Fees” within “General and Administrative Expenses” on our Condensed Consolidated Statements of Operations.  The fee is due upon the termination of certain yield transactions and is calculated as 50% of the value of the collateral securing Guaranteed Holdings’ obligations under these yield transactions but not to exceed $42.0 million.

The carrying value of all the above obligations under credit intermediation agreements, representing the deferral of the fee income over the obligation periods, was $18.8 million as of March 31, 2012 and $19.5 million as of December 31, 2011.  This amount is included in “Deferred revenues” within “Accounts payable, accrued expense and other liabilities” on our Condensed Consolidated Balance Sheets.

Loss Reserve Relating to Yield Transactions

We developed a strategy to address a marked decline in the operating performance of many of the non-stabilized properties underlying our Affordable Housing investments, to manage our exposure under the yield transactions described above and to address the declining cash flows to our Series B Freddie Mac Certificates.  To address these matters and their potential impact on our interests, we expect to restructure many of the mortgage revenue bonds to allow the bonds secured by these properties to stabilize.  In connection with the Natixis Master Agreement and the Merrill Master Agreement, we have agreed to terms for the restructuring of certain of the mortgage revenue bonds.  This strategy, including the terms agreed to in the Natixis Master Agreement and the Merrill Master Agreement, entails cash infusions, which could approximate $112.1 million, from us and other parties with an economic interest in the properties, or may result in a reduction in the principal balance of our Series B Freddie Mac Certificates.

For many of the properties in the pools associated with the credit intermediation agreements described under “Yield Transactions” above, mortgage revenue bonds were included in the December 2007 re-securitization transaction. Certain credit intermediated funds have equity investments in the properties underlying some of the bonds that require restructuring.  If the required principal buy downs are not made for these bonds, the underlying properties can be foreclosed upon which could cause a substantial recapture of LIHTCs, thereby reducing the rate of return earned by the limited partners of the funds.  A reduction in the rate of return below the rate specified at inception of the investment fund would trigger a default event that could require a payment to be made by the Primary Intermediators to the limited partners of the funds.

Should the Primary Intermediators expend cash to execute these restructurings, CFin Holdings, CFin or Guaranteed Holdings may have to reimburse them or they may have to forfeit cash and other assets that we have deposited as collateral.  Should the Primary Intermediators not expend cash to the extent we have projected, we could incur additional impairments of our Series B Freddie Mac Certificates.  We have analyzed the expected operations of the underlying properties and, as of March 31, 2012, we have estimated that payments by us totaling $71.3 million will need to be made in order to complete the restructuring to reduce the principal balance of mortgage debt on specified properties.  This mortgage reduction will limit our exposure under the yield guarantee arrangements.  Of the expected payments to be made, $31.7 million is accrued as part of “Accounts payable, accrued expenses and other liabilities” on the Condensed Consolidated Balance Sheets.  The remaining $39.6 million will be funded from the stabilization escrow established in connection with the 2007 re-securitization transaction, which has been fully reserved in prior years.  As of December, 31, 2011, we estimated that payments by us totaling $71.9 million needed to be made in order to complete the restructuring to reduce the principal balance of mortgage debt on specified properties.  Of the expected payments, $32.3 million was accrued as part of “Accounts payable, accrued expenses and other liabilities” on the Consolidated Balance Sheets.  The remaining $39.6 million would be funded from the stabilization escrow established in connection with the 2007 re-securitization transaction, which has been fully reserved in prior years.

- 40 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We have not yet been called upon to make payments under the yield transaction obligations.  However, certain cash and other assets were pledged as collateral to Merrill Lynch and Natixis by CFin, CFin Holdings, and Guaranteed Holdings. As of March 31, 2012, Guaranteed Holdings maintained collateral to satisfy Merrill Lynch’s collateral requirements, consisting of cash deposits of $44.1 million which are included in “Deferred costs and other assets, net” on our Condensed Consolidated Balance Sheets and a $19.4 million in investments in Series A-1 Freddie Mac Certificates included in “Available-for-sale investments” on our Condensed Consolidated Balance Sheets.  In addition, as of March 31, 2012, Centerline Financial maintained a cash balance of $66.3 million included in “Cash and cash equivalents” as a capital requirement in support of its exposure under its credit intermediation agreements.

Tax Credit Property Partnerships

To manage our exposure to risk of loss, we are able to remove the existing general partner from the Tax Credit Property Partnerships and assume control only for due cause related to the nonperformance of the general partner.  We assumed these general partnership interests to preserve our direct or indirect investments in mortgage revenue bonds or the equity investments in Tax Credit Property Partnerships on behalf of Tax Credit Fund Partnerships that we manage.

We have hired qualified property managers for each of the Tax Credit Property Partnerships in order to improve the performances of these partnerships.  During our holding period, we may need to support the Tax Credit Property Partnerships if they have not yet reached stabilization or we may choose to fund deficits as needed, to protect our interests.  The assets continue to be actively managed to minimize the necessary cash flow outlays and maximize the performance of each asset.  Due to the uncertain nature of cash needs at these Tax Credit Property Partnerships, we cannot estimate how much may ultimately be advanced while we own the general partner and co-general partner interests.

In addition, we may advance funds to Tax Credit Fund Partnerships to allow them to make supplemental loans for Tax Credit Property Partnerships in which they invest.  These advances are then repaid to us from cash flows, if any, at the Tax Credit Fund Partnership level.  Under the terms of our Term Loan and Revolving Credit Facility, we are, in certain cases, limited in the amount of advances that can be made.

As of March 31, 2012, we had a $65.8 million receivable for advances as described above, net of a $41.5 million reserve for bad debt (see Note 19).  This includes $23.4 million (net of a $12.0 million reserve) recorded in CAHA’s books and $42.4 million (net of a $29.5 million reserve) recorded in our isolated special purpose entities’ CFin Holdings and Guaranteed Holdings financial statements.

B. Funding Commitments

As of March 31, 2012, we had commitments to sell mortgages that have already been funded to GSEs totaling $82.1 million, which are included in “Mortgage loans held for sale and other assets” on the Condensed Consolidated Balance Sheets.

C. Mortgage Loan Loss Sharing Agreements

Under the Fannie Mae Delegated Underwriting Servicer (“DUS”) program, we originate loans through one of our subsidiaries that are thereafter purchased or credit enhanced by Fannie Mae and sold to third party investors.  Pursuant to a master loss sharing agreement with Fannie Mae, we retain a first loss position with respect to the loans that we originate and sell under this program.  For these loss sharing loans, we assume responsibility for a portion of any loss that may result from borrower defaults, based on the Fannie Mae loss sharing formulas, and Fannie Mae risk Levels I, II or III.  There is one Level III loan with an unpaid principal balance of $2.4 million, all of the remaining 1,079 loss sharing loans in this program as of March 31, 2012, were Level I loans.  For a majority of these loans, if a default occurs, 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; any remaining loss is borne by Fannie Mae.  A modified risk sharing arrangement is applied to 98 loans in which our risk share is reduced to 0% to 75% of our overall share of the loss.  Pursuant to this agreement, we are responsible for funding 100% of mortgagor delinquency (principal and interest) and servicing advances (taxes, insurance and foreclosure costs) until the amounts advanced exceed 5% of the unpaid principal balance at the date of default.  Thereafter, for Level I loans, we may request interim loss sharing adjustments that allow us to fund 25% of such advances until final settlement under the master loss sharing agreement.

We also participate in loss sharing transactions under Freddie Mac’s Delegated Underwriting Initiative (“DUI”) program whereby we have originated loans that were 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 in DUI 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.  As of March 31, 2012, we had 59 loss sharing loans in this program.

- 41 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Our maximum exposure at March 31, 2012, pursuant to these agreements, was $882.2 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 we believe this amount is not indicative of our actual potential losses.  We maintain an allowance for risk-sharing obligations for loans originated under these product lines at a level that, in management’s judgment, is adequate to provide for estimated losses.  At March 31, 2012 and December 31, 2011, that reserve was $21.7 million, respectively.  The reserve is recorded in “Accounts payable, accrued expenses and other liabilities” (see Note 12) on our Condensed Consolidated Balance Sheets.

The components of the change in the allowance for risk-sharing obligations were as follows:

	(in thousands)
Balance at January 1, 2011	$	29,924
Provision recorded during the period		238
Realized losses on risk-sharing obligations		(469)
Balance at March 31, 2011	$	29,693
Balance at January 1, 2012 and March 31, 2012	$	21,715

As of March 31, 2012, we maintained collateral consisting of money market and short-term investments of $12.5 million, which is included in “Restricted cash” on our Condensed Consolidated Balance Sheets, to satisfy the Fannie Mae collateral requirements of which we were in compliance at March 31, 2012.  In addition, we maintain cash balances of these subsidiaries in excess of program requirements.  At March 31, 2012, we had $10.5 million excess cash.

We are also required by the master agreement with Freddie Mac to provide collateral as security for payment of the reimbursement obligation.  The collateral can include a combination of the net worth of one of our Mortgage Banking subsidiaries, a letter of credit and/or cash.  To meet this collateral requirement, we have a letter of credit arrangement with Bank of America as a part of our Revolving Credit Facility (see Note 10).  At March 31, 2012, commitments under this agreement totaled $12.0 million.

D. Legal Contingencies

From time to time, the Company may become involved in various claims and legal actions arising in the ordinary course of business.  In the opinion of management, the ultimate disposition of these matters will not have a material effect on the Company’s condensed consolidated financial statements and therefore no accrual is required as of March 31, 2012 and December 31, 2011.

E. 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 $174.8 million as of March 31, 2012.  To date, we have had minimal exposure to losses under these transactions and anticipate no material liquidity requirements in satisfaction of any guarantee issued.

In addition, we have entered into a number of indemnification agreements whereby we will indemnify a purchaser of the general partner (“GP”) interests in Tax Credit Property Partnerships for unspecified losses they may incur as a result of certain acts, including those that occurred while we served as the GP.  Although some of the indemnification agreements do not explicitly provide a cap on our exposure, to date we have had minimal exposure to losses under these transactions and anticipate no material liquidity requirements in satisfaction of any indemnities issued.

Centerline Financial has two credit intermediation agreements to provide for monthly principal and interest debt service payments for debt owed by Tax Credit Property Partnerships owned by third parties, to the extent there is a shortfall in payment from the underlying property.  In return, we receive fees monthly based on a fixed rate until the expiration of the agreements that occur in 2023 and 2025.  Total potential exposure pursuant to these transactions is $33.7 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 be rehabilitated or sold.  Deferred fee income over the obligation period was $0.8 million based on the fair value of the obligations as of March 31, 2012.  This amount is included in “Deferred revenues” within “Accounts payable, accrued expenses and other liabilities” on our Condensed Consolidated Balance Sheets.

- 42 -

CENTERLINE HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As indicated in Note 19, an affiliate of TRCLP assumed $5.0 million of the debt under our Term Loan and Revolving Credit Facility in connection with a consulting and advisory agreement we entered into with the TRCLP affiliate.  Under the consulting agreement, we are obligated to pay fees to the TRCLP affiliate equal to the interest payable on the TRCLP Loan.

Under the terms of the agreement and as detailed in Note 19, in some cases, if we terminate the agreement we may be obligated to immediately repay the remaining principal balance of the TRCLP loan.

NOTE 22 – Subsequent Events

·   On April 25, 2012, we signed a $75 million committed warehouse facility that matures in April 2013 and bears interest at a rate of LIBOR plus a minimum of 2.50% and a maximum of 3.50%. The new warehouse facility provides us with additional resources for warehousing of mortgage loans relating to our Mortgage Banking and Affordable Housing Debt segments.

·   On May 18, 2012, we entered into a fourth amendment of the Waiver, which among other things: (i) again granted a waiver through July 16, 2012 of our noncompliance with the Consolidated EBITDA to Fixed Charges Ratio covenant contained in our Credit Agreement with respect to the fiscal quarter ended September 30, 2011 which was necessitated by our failure to deliver certain 2012 projections that demonstrate compliance with the financial covenant set forth in the prior waiver; (ii) granted a waiver through July 16, 2012 of our noncompliance with the Consolidated EBITDA to Fixed Charges Ratio covenant contained in our Credit Agreement with respect to the fiscal quarter ended March 31, 2012; and (iii) waived the requirement that we provide the lenders under our Credit Agreement with certain 2012 projections that demonstrate compliance with the financial covenant.

- 43 -

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Centerline Holding Company.  MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited condensed consolidated financial statements and the accompanying notes.

This MD&A contains forward-looking statements; please see page 68 for more information

Significant components of the MD&A section include:		Page
SECTION 1 – Overview
The overview section provides a summary of the Company and our reportable business segments.  We also include a discussion of factors affecting our consolidated results of operations as well as items specific to each business segment.		45
SECTION 2 – Consolidated Results of Operations
The consolidated results of operations section provides an analysis of our consolidated results on a reportable segment basis for the three months ended March 31, 2012, against the comparable prior year period.  Significant subsections within this section are as follows:		46
	Summary Consolidated Results	47
	Comparability of Results	48
	Affordable Housing Equity	48
	Affordable Housing Debt	52
	Mortgage Banking	56
	Asset Management	59
	Corporate	60
	Consolidated Partnerships	61
	Expense Allocation	62
	Eliminations and Adjustments	63
	Income Taxes	63
	Accounting Developments	63
	Inflation	63
SECTON 3 - Financial Condition
The financial condition section discusses our ability to generate adequate amounts of cash to meet our current and future needs.  Significant subsections within this section are as follows:		64
	Liquidity	64
	Cash Flows	65
	Capital Resources	66
	Commitments and Contingencies	69
SECTION 4 – Forward Looking Statements		70

- 44 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

SECTION 1 – OVERVIEW

Centerline Holding Company (OTC: CLNH), through its subsidiaries, provides real estate financing and asset management services focused on affordable and conventional multifamily housing.  We offer a range of both debt financing and equity  investment products, as well as asset management services to developers, owners, and investors.  We are structured to originate, underwrite, service, manage, refinance or sell assets through all phases of its life cycle.  As a leading sponsor of Low-Income Housing Tax Credit (“LIHTC”) funds, we have raised more than $10 billion in equity across 136 funds.  Today we manage $9.3 billion of investor equity within 116 funds and invest in approximately 1,200 assets located in 45 U.S. states.  Our multifamily lending platform services $11.4 billion in loans and mortgage revenue bonds that we manage on behalf of the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), known collectively as Government-Sponsored Enterprises (“GSEs”), as well as the Government National Mortgage Association (“Ginnie Mae”), and the Federal Housing Administration (“FHA”).  Centerline Holding Company, or its predecessor entities, has been in continuous operation since 1972.  Organized as a statutory trust created under the laws of Delaware, we conduct substantially all of our business through our subsidiaries, generally under the designation Centerline Capital Group.  The terms “we”, “us”, “our” or “the Company” as used throughout this document refer to the business as a whole, or a subsidiary, while the term “parent trust” refers only to Centerline Holding Company as a stand-alone entity.

We manage our operations through six reportable segments.  Our reportable segments include four core business segments and two additional segments: Corporate and Consolidated Partnerships.  The four core business segments are:  Affordable Housing Equity, Affordable Housing Debt, Mortgage Banking and Asset Management.  Our Corporate segment includes: Finance and Accounting, Treasury, Legal, Marketing and Investor Relations, Operations and Risk Management, supporting our four core business segments.  In our Consolidated Partnerships segment, we consolidate certain funds we control, notwithstanding the fact that we may have only a minority, and in most cases, negligible, economic interest.

Our professional staff has a unique blend of capital markets and real estate expertise, experience, and creativity to provide highly practical, customized solutions for real estate investors, developers, and owners.  We pride ourselves on our strong underwriting protocols, solid credit processes and procedures, a superior asset management platform, creativity, flexibility, and the ability to react quickly to our customers’ needs.  We built a growing debt origination platform with strong sponsor relationships, access to a variety of capital sources, and a stable fund management business with deep investor relationships.  Most importantly, we have recruited and retained the best professionals to manage, run, and build our businesses.

- 45 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

SECTION 2 – CONSOLIDATED RESULTS OF OPERATIONS

Summary Consolidated Results

Our summary consolidated results of operations for the three months ended March 31, 2012 and 2011 are presented below.

			Three Months Ended March 31,
			2012																		2011
			Affordable		Affordable										Eliminations						Affordable		Affordable										Eliminations
			Housing		Housing		Mortgage		Asset				Consolidated		and				% of		Housing		Housing		Mortgage		Asset				Consolidated		and				% of
(in thousands)			Equity		Debt		Banking		Management		Corporate		Partnerships		Adjustments		Total		Revenues		Equity		Debt		Banking		Management		Corporate		Partnerships		Adjustments		Total		Revenues		% Change
Revenues
	Mortgage revenue bonds		$	146	$	13,783	$	-	$	-	$	-	$	-	$	(8,466)	$	5,463	9.0	%	$	159	$	12,219	$	-	$	-	$	-	$	-	$	(8,240)	$	4,138	8.5	%	32.0	%
	Other interest income			1,032		4,916		813		-		4		-		(92)		6,673	11.1			498		2,483		808		-		17		-		(117)		3,689	7.6		80.9
		Interest income		1,178		18,699		813		-		4		-		(8,558)		12,136	20.1			657		14,702		808		-		17		-		(8,357)		7,827	16.1		55.1
	Fund sponsorship			4,873		-		-		-		-		-		(3,575)		1,298	2.1			7,284		-		-		-		-		-		(6,168)		1,116	2.3		16.3
	Application and processing fees			-		56		-		-		-		-		-		56	0.1			-		42		-		-		-		-		-		42	0.1		34.2
	Asset management fees			-		-		-		5,719		-		-		(5,719)		-	-			-		-		-		5,885		-		-		(5,885)		-	-		N/A
	Mortgage origination fees			-		448		1,277		-		-		-		-		1,725	2.9			-		230		823		-		-		-		-		1,053	2.2		63.8
	Mortgage servicing fees			-		974		5,269		-		-		-		-		6,243	10.3			-		894		4,879		-		-		-		14		5,787	11.9		7.9
	Credit intermediation fees			736		-		-		-		-		-		(705)		31	0.1			1,169		-		-		-		-		-		(1,139)		30	0.1		3.3
	Other fee income			-		-		109		-		-		-		(207)		(98)	(0.2)			-		-		120		-		-		-		(218)		(98)	(0.2)		-
		Fee income		5,609		1,478		6,655		5,719		-		-		(10,206)		9,255	15.3			8,453		1,166		5,822		5,885		-		-		(13,396)		7,930	16.3		16.7
		Gain on sale of mortgage loans		-		2,205		8,208		-		-		-		-		10,413	17.2			-		880		4,843		-		-		-		-		5,723	11.7		82.0
	Prepayment penalties			-		-		162		-		-		-		-		162	0.3			-		-		39		-		-		-		-		39	0.1		315.4
	Expense reimbursement			1,426		-		-		-		100		-		(1,525)		1	-			2,251		-		-		-		100		-		(1,681)		670	1.4		(99.9)
	Miscellaneous			304		45		537		-		22		-		(1)		907	1.5			5		19		193		45		1		-		(1)		262	0.5		246.9
		Other revenues		1,730		45		699		-		122		-		(1,526)		1,070	1.8			2,256		19		232		45		101		-		(1,682)		971	2.0		10.2
	Revenues - consolidated partnerships			-		-		-		-		-		27,577		-		27,577	45.6			-		-		-		-		-		26,258		-		26,258	53.9		5.0
Total revenues			$	8,517	$	22,427	$	16,375	$	5,719	$	126	$	27,577	$	(20,290)	$	60,451	100.0	%	$	11,366	$	16,767	$	11,705	$	5,930	$	118	$	26,258	$	(23,435)	$	48,709	100.0	%	24.1	%
Expenses
	Salary		$	1,607	$	1,379	$	4,403	$	1,880	$	4,074	$	-	$	-	$	13,343	22.1	%	$	1,944	$	117	$	2,877	$	1,979	$	3,951	$	-	$	-	$	10,868	22.3	%	22.8	%
	Other general and administrative			6,075		2,206		3,420		655		7,631		-		(6,028)		13,959	23.1			7,253		2,075		2,329		422		6,840		-		(6,209)		12,710	26.1		9.8
		General and administrative		7,682		3,585		7,823		2,535		11,705		-		(6,028)		27,302	45.2			9,197		2,192		5,206		2,401		10,791		-		(6,209)		23,578	48.4		15.8
	Affordable Housing loss reserve			(600)		-		-		-		-		-		-		(600)	(1.0)			(5,500)		-		-		-		-		-		-		(5,500)	(11.3)		(89.1)
	Bad debt expense			3,287		-		-		-		-		-		-		3,287	5.4			2,471		-		-		-		-		-		2		2,473	5.1		32.9
	Provision (recovery) for risk sharing
		obligations		-		-		-		-		-		-		-		-	-			-		238		-		-		-		-		-		238	0.5		(100.0)
	Lease termination costs			-		-		-		-		3,318		-		-		3,318	5.5			-		-		-		-		-		-		-		-	-		N/A
		Provision for (recovery of) losses		2,687		-		-		-		3,318		-		-		6,005	9.9			(3,029)		238		-		-		-		-		2		(2,789)	(5.7)		(315.3)
	Borrowing and financing			196		11,684		437		-		1,229		-		(25)		13,521	22.4			785		12,097		249		-		1,297		-		(226)		14,202	29.2		(4.8)
	Derivatives - change in fair value			91		(941)		-		-		-		-		-		(850)	(1.4)			18		(721)		-		-		-		-		-		(703)	(1.4)		20.9
	Preferred shares of subsidiary			-		960		-		-		-		-		-		960	1.6			-		960		-		-		-		-		-		960	2.0		-
		Interest expense		287		11,703		437		-		1,229		-		(25)		13,631	22.6			803		12,336		249		-		1,297		-		(226)		14,459	29.8		(5.7)
	Depreciation and amortization			33		330		3,146		36		314		-		-		3,859	6.4			41		280		2,731		54		440		-		-		3,546	7.3		8.8
	Interest expense - consolidated partnerships			-		-		-		-		-		13,549		(8,477)		5,072	8.4			-		-		-		-		-		12,916		(8,255)		4,661	9.6		8.8
	Other expense - consolidated partnerships			-		-		-		-		-		66,092		(5,681)		60,411	99.9			-		-		-		-		-		54,683		(8,850)		45,833	94.1		31.8
Total expenses			$	10,689	$	15,618	$	11,406	$	2,571	$	16,566	$	79,641	$	(20,211)	$	116,280	192.4	%	$	7,012	$	15,046	$	8,186	$	2,455	$	12,528	$	67,599	$	(23,538)	$	89,288	183.5	%	30.2	%

- 46 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

		Three Months Ended March 31,
		2012																		2011
		Affordable		Affordable										Eliminations						Affordable		Affordable										Eliminations
		Housing		Housing		Mortgage		Asset				Consolidated		and				% of		Housing		Housing		Mortgage		Asset				Consolidated		and				% of
(in thousands)		Equity		Debt		Banking		Management		Corporate		Partnerships		Adjustments		Total		Revenues		Equity		Debt		Banking		Management		Corporate		Partnerships		Adjustments		Total		Revenues		% Change
Gain on settlement of liabilities			-		-		-		-		-		-		-		-	-			-		-		-		-		1,756		-		-		1,756	3.6		(100.0)
Other losses – consolidated partnerships			-		-		-		-		-		(153,364)		-		(153,364)	(253.7)			-		-		-		-		-		(61,441)		-		(61,441)	(126.1)		149.6
	Other income (loss)		-		-		-		-		-		(153,364)		-		(153,364)	(253.7)			-		-		-		-		1,756		(61,441)		-		(59,685)	(122.5)		157.0
Income tax (provision)/benefit – continuing
	operations		-		-		-		-		(60)		-		-		(60)	(0.1)			-		-		-		-		(193)		-		-		(193)	(0.4)		(68.8)
	Net (loss) income  continuing operations		(2,172)		6,809		4,969		3,148		(16,500)		(205,428)		(79)		(209,253)	(346.2)			4,354		1,721		3,519		3,475		(10,847)		(102,782)		103		(100,457)	(206.2)		108.3
Allocation – preferred shares			-		1,556		-		-		-		-				1,556	2.6			-		1,556		-		-		-		-		-		1,556	3.2		-
Allocation – non-controlling interests			16		-		-		-		-		-				16	-			671		-		-		-		(413)		-		-		258	0.5		(93.8)
Allocation – consolidated partnerships			-		-		-		-		-		(205,426)				(205,426)	(339.8)			-		-		-		-		-		(102,780)		-		(102,780)	(211.0)		99.9
Net loss (income) attributable to non-controlling
	interest – continuing operations		16		1,556		-		-		-		(205,426)		-		(203,854)	(337.2)			671		1,556		-		-		(413)		(102,780)		-		(100,966)	(207.3)		101.9
Net (loss) income attributable to Centerline
	Holding Company shareholders - continuing
	operations, pre-allocations		(2,188)		5,253		4,969		3,148		(16,500)		(2)		(79)		(5,399)	(9.0)			3,683		165		3,519		3,475		(10,434)		(2)		103		509	1.1		N/M
Inter-segment expense allocation			2,828		3,416		3,497		3,769		(13,510)		-		-		-	-			2,184		1,936		2,473		3,086		(9,679)		-		-		-	-		N/A
	Net  (loss) income attributable to Centerline
	Holding Company shareholders – continuing
	operations	$	(5,016)	$	1,837	$	1,472	$	(621)	$	(2,990)	$	(2)	$	(79)	$	(5,399)	(9.0)	%	$	1,499	$	(1,771)	$	1,046	$	389	$	(755)	$	(2)	$	103	$	509	1.1	%	N/M	%
Net income – discontinued operations																	-	-																	253	0.5		(100.0)
Net income attributable to Centerline Holding Company shareholders – discontinued operations																	-	-																	253	0.5		(100.0)
Total (loss) income attributable to Centerline Holding Company shareholders																$	(5,399)	(9.0)	%															$	762	1.6	%	N/M	%
N/M – Not meaningful.

- 47 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Comparability of Results

Prior period segment results were reclassified to reflect the presentation of Affordable Housing Equity, Affordable Housing Debt and Asset Management as reportable segments in 2011 and the Company’s 2011 decision to allocate certain Corporate overhead to the Affordable Housing Equity, Affordable Housing Debt, Mortgage Banking and Asset Management segments.

Net income or loss is defined as the net result of total company operations, prior to allocation of income or loss to non-controlling interests.  As the funds our Affordable Housing Equity segment originates and manages (“Tax Credit Fund Partnerships”) by design generate non-cash losses, primarily related to depreciation expense on real estate assets, we expect to record net losses for the foreseeable future as they represent a significant portion of our consolidated operations.  After allocation of income or loss to non-controlling interests, we recorded net loss attributable to our shareholders for the quarter ended March 31, 2012 and net income attributable to our shareholders for the quarter ended March 31, 2011.  For the periods presented, we highlight in the table below those items, principally non-cash in nature, which impact the comparability of results from period to period.  Such items are shown prior to any adjustments for tax and allocations to non-controlling interests and are discussed within this section:

			Three Months Ended
			March 31,
(in thousands)			2012		2011
Reduction/(Increase) to net income:
	Other items:
		Affordable Housing Equity segment:
		Affordable housing loss reserve recovery	$	(600)	$	(5,500)
		Assumption fee relating to restructuring of credit intermediation
		agreements		911		1,397
		Change in fair value of derivatives		91		18
		Affordable Housing Debt segment:
		Provision for risk-sharing obligations		-		238
		Change in fair value of derivatives		(941)		(721)
		Corporate segment:
		Gain on settlement of liabilities		-		(1,756)
		Lease termination costs		3,318		-

Affordable Housing Equity

Our Affordable Housing Equity segment provides equity financing to properties that benefit from the LIHTC or other financial structures (collectively “Tax Credit”) intended to promote development of affordable multifamily housing properties.  We sponsor and manage Tax Credit Fund Partnerships for institutional and retail investors who invest in affordable housing properties nationwide.  During 2011 we raised $142.2 million of gross equity for these new Tax Credit Fund Partnerships, of which we have invested $124.6 million and $10.4 million in property acquisitions during 2011 and first quarter of 2012, respectively.  The remaining equity raised from these originations will be invested in property acquisitions in future periods.  We have not closed any funds during 2012. We will continue to actively pursue new opportunities going forward and have been acquiring limited partnership interests in entities that own tax credit properties for inclusion in future Tax Credit Fund Partnership offerings.  We expect future Tax Credit Fund Partnership offerings to be a mix of single-investor as well as multi-investor structures.

In addition, we are planning on syndicating tax credit products in the coming year that we will not have any continuing involvement in since we will not manage, control or retain any interest in going forward.  These syndications will generate origination fees that will be recognized as fund sponsorship fee income.

The Tax Credit Fund Partnerships are required to hold their investments in property-level partnerships until the end of their LIHTC compliance period which is generally 15 years.  In 2011, there were a large volume of property dispositions as a result of an increase in properties reaching the end of their compliance period.  These dispositions generated significant cash proceeds resulting in the recognition of asset management fees and expense reimbursements previously deemed to be uncollectable as well as an increase in the recognition of disposition fees.  We anticipate that there will continue to be a volume of dispositions in the coming year that is consistent with prior years, although there is no certainty as to the level of proceeds to be generated as a result of these dispositions.

- 48 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Revenues
For a description of our revenue recognition policies, see Note 2 to our 2011 Form 10-K.
			Three Months Ended March 31,
	(dollars in thousands)		2012		2011		% Change
	Interest income:
		Mortgage revenue bond interest income	$	146	$	159	(8.2)	%
		Other interest income		1,032		498	107.2
	Fee income:
		Fund sponsorship		4,873		7,284	(33.1)
		Credit intermediation fees		736		1,169	(37.0)
	Other:
		Expense reimbursements		1,426		2,251	(36.7)
		Miscellaneous		304		5	N/M
	Total revenues		$	8,517	$	11,366	(25.1)	%
	N/M - Not Meaningful.

Interest Income

Other Interest Income

Other interest income includes interest on voluntary loans provided to Tax Credit Fund Partnerships related to property advances, as well as interest earned on short term and other investments.  The increase is due to an increase in interest rates related to certain short term investments and an increase in projected interest earnings in other investments.

Fee Income

Fee income in our Affordable Housing Equity segment includes income generated from Consolidated Partnerships which are eliminated upon consolidation.

- 49 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Fund Sponsorship
	Three Months Ended March 31,
(dollars in thousands)	2012		2011		% Change
Fees based on equity invested
Property acquisition fees	$	234	$	1,400	(83.3)	%
Organization, offering and acquisition allowance fees		208		1,244	(83.3)
Fees based on management of sponsored Tax Credit Fund Partnerships
Partnership management fees		810		1,340	(39.6)
Asset management fees		2,109		1,917	10.0
Other fee income		1,512		1,383	9.3
Total fund sponsorship fee income	$	4,873	$	7,284	(33.1)	%
Assets under management – Tax Credit Fund Partnerships	$	9,285,253	$	9,410,437	(1.3)	%
Equity raised by Tax Credit Fund Partnerships	$	-	$	119,250	(100.0)	%
Equity invested by Tax Credit Fund Partnerships(1)	$	10,398	$	62,220	(83.3)	%

(1) Excludes warehoused properties that have not yet closed into a Tax Credit Fund Partnership.

Fees Based on Equity Invested

While we may acquire properties on an ongoing basis throughout the year and recognize revenue based on equity invested, we do not recognize property acquisition fees until we place the property into a sponsored Tax Credit Fund Partnership.  Therefore, a change in timing of a Tax Credit Fund Partnership closure may impact the level of revenues we recognize in a given period.  Additionally, the type of Tax Credit Fund Partnership originated (whether for a single investor, multiple investors or one with specified rates of return) can affect the level of revenues as the fee rate for each varies.  The decrease in the number of acquisitions in the first quarter of 2012 is directly related to the decrease in equity invested of $51.8 million from the first quarter of 2011.

Fees Based on Management of Sponsored Tax Credit Fund Partnerships

We collect partnership management fees at the time a Tax Credit Fund Partnership closes and recognize them over the first five years of a Tax Credit Fund Partnership’s life.  Due to the expiration of the five-year service period for certain Tax Credit Fund Partnerships, these fees have decreased for the three months ended March 31, 2012 and will continue to decrease throughout 2012.  These decreases would be partially offset should we originate any new Tax Credit Fund Partnerships.

Asset management fees are collected over the life of a Tax Credit Fund Partnership and recognized as earned to the extent that the Tax Credit Fund Partnership has available cash flow.  The increase in asset management fees in 2012 was primarily related to  fees collected from certain investment funds which have an increase in available cash flow from the disposition of property-level partnerships. Although we anticipate a consistent level of property dispositions to continue within the coming year, due to the volatility in the real estate market, there is uncertainty in the amount of proceeds the Tax Credit Fund Partnerships will receive and the amount of fees that will be generated.

Other fund management fee income includes administrative fees, disposition fees and credit intermediation fees.

Credit Intermediation Fees

We collect credit intermediation fees at the time a Tax Credit Fund Partnership closes and recognize them over the fund’s life based on risk weighted periods on a straight-line basis.  As the Affordable Housing Equity segment no longer provides credit intermediation for new Tax Credit Fund Partnerships or products, this fee stream will continue to decline as the revenue recognition period ends for certain Tax Credit Fund Partnerships.

- 50 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Other Revenues

The decrease of $0.8 million in expense reimbursements was due primarily to a decrease in the number of Tax Credit Fund Partnerships with available cash flow to pay expense reimbursements.

Expenses
Expenses for the Affordable Housing Equity segment for the three months ended March 31 were as follows:
			Three Months Ended March 31,
	(dollars in thousands)		2012			2011			% Change
	General and administrative expenses
		Salaries and benefits	$	1,607		$	1,944		(17.3)	%
		Other		6,075			7,253		(16.2)
		Total general and administrative		7,682			9,197		(16.5)
	Provision for (recovery of) losses			2,687			(3,029)		(188.7)
	Interest expense:
		Borrowings and financings		196			785		(75.0)
		Derivatives – change in fair value		91			18		405.6
	Depreciation and amortization			33			41		(19.5)
	Total expenses		$	10,689		$	7,012		52.4	%
	Average borrowing rate			6.46	%		6.33	%
	Average Securities Industry and Financial Markets Association (“SIFMA”) rate			0.12	%		0.26	%

General and Administrative

Salaries and benefits

Salaries and benefits decreased by $0.3 million during the first quarter of 2012 mainly due to the restructuring of senior management.

Other

Assumption fees decreased by $0.5 million due to a decrease in the net assets of a subsidiary on which the fee is based (see further discussion in Note 21 under Affordable Housing Transactions).

Other general and administrative expenses decreased by $0.7 million primarily attributed to acquisition expenses related to property closings.  There was one property acquisition during the first quarter of 2012 as compared to eight property acquisitions during the same period in 2011.

Provision for (recovery of) Losses
			Three Months Ended March 31,
	(dollars in thousands)		2012		2011		% Change
	Affordable Housing loss reserve recovery		$	(600)	$	(5,500)	(89.1)	%
	Bad debt expense			3,287		2,471	33.0
		Total provision for (recovery of) losses	$	2,687	$	(3,029)	(188.7)	%

- 51 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Provision for losses increased by $5.7 million reflecting:

·   A reduction in our Affordable Housing loss reserve recovery in 2012.  In 2011, as we worked with parties that have an economic interest in the properties that secure mortgage revenue bonds associated with our credit intermediation agreements, we estimated the payments that were required to be made in order to complete the restructuring and reduce the principal balance of certain mortgage revenue bonds at levels below the amounts reached in the March 2010 agreements with such counterparties.  Provisions recorded in 2012 reflect revisions to the assumed timing of the restructurings (see further discussion in Note 21 under Loss Reserve Relating to Yield Transactions).

·   An increase of $0.8 million in bad debt expense primarily due to increased advances to Tax Credit Fund Partnerships.

Interest Expense

Interest expense on borrowings and financings decreased by $0.6 million primarily due to the payoff of the CFin Holdings credit facility in June 2011, which at that time, all commitments were terminated, and accrued and capitalized interest was waived.

Profitability
Profitability for the Affordable Housing Equity segment for the three months ended March 31 was as follows:
		Three Months Ended March 31,
	(dollars in thousands)	2012		2011		% Change
	(Loss) income before other allocations	$	(2,172)	$	4,354	(149.9)	%
	Net (loss) income		(5,016)	$	1,499	(434.6)

The change in income before other allocations reflects the revenues and expense changes discussed above.  Incremental costs incorporated in net income include allocations to the perpetual Equity Issuer preferred shares.

Affordable Housing Debt

The Affordable Housing Debt segment is responsible for providing financing to developers and owners of affordable multifamily properties. We originate and service affordable housing multifamily loans under GSE and FHA programs. We have risk-sharing obligations on most loans we originate under the Fannie Mae Delegated Underwriting Servicer (“DUS”) program. For a majority of loans originated under the DUS program, we absorb the first 5% of any losses on the unpaid principal balance of a loan if a default occurs; above 5% we share a percentage of the loss with Fannie Mae, with our maximum loss capped at 20% of the unpaid principal balance of a loan. We also have risk-sharing obligations on loans we originated under the Freddie Mac Delegated Underwriting Initiative(“DUI”) program.  For loans that we originated under the DUI program, we are obligated to reimburse Freddie Mac for a portion of any loss that may result from borrower defaults in DUI transactions.  For such loans, 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.  We are no longer originating loans under DUI, as this program is no longer available.  Future loans with Freddie Mac that we will originate under the Freddie Mac Targeted Affordable Housing (“TAH”) program, will have no risk-sharing components.

Historically, we acquired mortgage revenue bonds that financed affordable multifamily housing projects, using our balance sheet for the initial acquisition.  In December 2007, we re-securitized a major portion of our affordable housing mortgage revenue bond portfolio with Freddie Mac, which for accounting purposes, was treated as a sale.  We retained senior Freddie Mac credit-enhanced certificates that collateralize the preferred shares of one of our subsidiaries, a high-yielding residual interest in the portfolio, and servicing rights, as part of the re-securitization transaction.  As a result of the re-securitization transaction, we earn interest income on the retained certificates, the interest income allocated to the high-yielding residual interest, and ongoing servicing fees.

In an effort to expand our affordable debt platform and accelerate our production volume, we have recruited a highly experienced FHA and affordable debt team.  We believe that expanding our affordable debt platform will also provide further expertise and diversification of our product offering which will directly benefit our LIHTC equity business.  The Affordable Housing Debt segment currently has origination personnel in New York, Atlanta, Denver, Minneapolis, and Dallas with underwriting in New York, Atlanta, Birmingham and Dallas.

- 52 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Revenues
For a discussion of the accounting policies with respect to revenue recognition,  see Note 2 in our 2011 Form 10-K
			Three Months Ended March 31,
	(dollars in thousands)		2012		2011		% Change
	Interest income:
		Mortgage revenue bond interest income	$	13,783	$	12,219	12.8	%
		Other interest income		4,916		2,483	98.0
	Fee income:
		Application and processing fees		56		42	33.3
		Mortgage origination fees		448		230	94.8
		Mortgage servicing fees		974		894	8.9
	Other:
		Gain on sale of mortgage loans		2,205		880	150.6
		Miscellaneous		45		19	136.8
	Total revenues		$	22,427	$	16,767	33.8	%

Interest Income

Mortgage Revenue Bond Interest Income

Our role as special servicer of the mortgage revenue bonds allows us to repurchase those bonds in special servicing. Accordingly, we re-recognize bonds as assets when transferring them into special servicing and de-recognize bonds when transferring them out of special servicing.  The increase in mortgage revenue bond interest income is primarily due to a bond that was previously non-paying which was brought current with a $1.7 million payment and also increased the weighted average yield (as shown in the table below).  

The following table presents information related to our mortgage revenue bond interest income:
		Three Months Ended March 31,
	(dollars in thousands)	2012			2011			% Change
	Average number of bonds on the balance sheet not receiving sale recognition		95			96		(1.0)	%
	Average balance (unpaid principal balance)	$	829,911		$	857,805		(3.3)	%
	Weighted average yield		6.64	%		5.70	%

Other Interest Income

Other interest income includes the interest recorded on retained interests from the 2007 re-securitization transaction primarily related to the Series A-1 Freddie Mac Certificates in the amount of $1.8 million and Series B Freddie Mac Certificates in the amount of $3.0 million.  The increase in other interest income of $2.4 million is primarily due to an increase in the effective yield of the Series B Freddie Mac certificates from 9.59% in 2011 to 66.47% in 2012 due to the increase in projected cash flows subsequent to the impairments recorded in 2010 as a result of the restructuring of certain bonds.

- 53 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Fee Income
Mortgage Origination Fees
Affordable Housing Debt mortgage loan originations for the three months ended March 31 were as follows:
	Three Months Ended March 31,
	2012				2011		% Change
Total mortgage origination activity(1)	$	20,815			$	8,545	143.6	%
Mortgages originated in prior periods and sold during the period		54,557				17,000
Less: mortgages originated but not yet sold(2)		(9,750)				(4,203)
Total mortgage origination activity recognized for GAAP and for which revenue is recognized	$	65,622			$	21,342	207.5	%
			% of Total				% of Total
Fannie Mae	$	65,622	100.0	%	$	21,342	100.0	%
	$	65,622	100.0	%	$	21,342	100.0	%
(1) Includes all mortgages funded during the period.
(2) Included in Other Investments – mortgage loans held for sale.

Our mortgage origination volume recognized for generally accepted accounting principles (“GAAP”) purposes increased by 207.5% primarily due to a the hiring of a highly experienced affordable debt team during the second half of 2011, which resulted in increased loan origination capabilities and execution.  We have several affordable housing debt origination and underwriting teams, geographically disbursed, to help us achieve future origination goals.  We originated ten loans in the aggregate amount of $65.6 million in the first quarter of 2012 as compared to three loans in the aggregate amount of $21.3 million during the same period of 2011, however, due to pricing, a $7.5 million loan originated in 2012 did not earn an origination fee, but higher trading premium, which resulted in mortgage origination revenue not increasing proportionally to origination volume.

Mortgage Servicing Fees

Mortgage servicing fees increased due to an increase in the Affordable Housing Debt loan servicing portfolio year over year.  These increases can be attributed to an increase in new originations towards the end of 2011 and into 2012, creating a larger portfolio balance and an increase in servicing fee revenue.  Originations made in the first quarter of 2012 were adequate to offset loan payoffs and maturities in the portfolio.

Our portfolio balances at March 31, 2012 and 2011 were as follows:
		March 31,
	(dollars in thousands)	2012		2011		% Change
	Primary servicing portfolio	$	594,711	$	467,676	27.2	%

Gain on Sale of Mortgage Loans

Overall, we experienced a $1.3 million increase in gain on sales of loans due to an increase in the premiums earned on loan sales to GSEs, as well as an increase in the value of mortgage servicing rights (“MSRs”) retained on each loan.  We recorded $1.0 million in premium revenue and $1.3 million of revenue resulting from the valuation of MSRs in 2012 as compared to $0.3 and $0.6 million, respectively, in 2011, primarily the result of an increase in origination volume.  

- 54 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Expenses
Expenses for the Affordable Housing Debt segment for the three months ended March 31 were as follows:
			Three Months Ended March 31,
	(dollars in thousands)		2012			2011			% Change
	General and administrative expenses
		Salaries and benefits	$	1,379		$	117		N/M	%
		Other		2,206			2,075		6.3
		Total general and administrative		3,585			2,192		63.5
	Provision for risk sharing obligations			-			238		(100.0)
	Interest expense:
		Borrowings and financings		11,684			12,097		(3.4)
		Derivatives – change in fair value		(941)			(721)		30.5
		Preferred shares of subsidiary		960			960		-
	Depreciation and amortization			330			280		17.9
	Total expenses		$	15,618		$	15,046		3.8	%
	Average borrowing rate			6.46	%		6.33	%
	Average SIFMA rate			0.12	%		0.26	%
	N/M – Not meaningful.

General and Administrative

General and administrative expense increased by $1.4 million, primarily due to an increase in salaries and benefits, from hiring an experienced Affordable debt team in the second half of 2011.

Provision for risk sharing obligations

Provision for risk-sharing obligations reflects our estimated portion of losses on DUI loans in our loss sharing program with Freddie Mac (see Note 21 to the condensed consolidated financial statements).  Property performance on loans in our risk-sharing program with Freddie Mac declined slightly in 2011, resulting in an increase in the provision for risk-sharing obligations of $0.2 million during the first quarter of 2011.  There was no increase in the provision in the first quarter of 2012.

Interest Expense

Interest expense represents direct financing costs, including on-balance sheet securitizations of mortgage revenue bonds and distributions on preferred shares of Equity Issuer.  The decrease in interest expense is primarily due to a decrease in the outstanding secured financing weighted average principal balance from $663.7 million at March 31, 2011 to $617.7 million at March 31, 2012.

Profitability
Profitability for the Affordable Housing Debt segment for the three months ended March 31 was as follows:
		Three Months Ended March 31,
	(dollars in thousands)	2012		2011		% Change
	Income before other allocations	$	6,809	$	1,721	295.6	%
	Net income (loss)	$	1,837	$	(1,771)	(203.7)	%

The change in income before other allocations and net income (loss) reflects the revenue and expense changes discussed above. Incremental costs incorporated in net loss include allocations to the perpetual Equity issuer preferred shares.

- 55 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Mortgage Banking

The primary business function of the Mortgage Banking segment is to underwrite, originate, and service conventional multifamily loans under GSE, Ginnie Mae and FHA programs.  Originated loans are pre-sold to GSEs and in many cases, are used as collateral for mortgage-backed securities issued and guaranteed by the GSE and traded in the open market.  We earn origination fees and trading-premium revenues.  We also recognize MSR revenues on loans we originate as in most cases we retain the servicing rights.  Trading premiums and MSR values are recorded as gains on sale of mortgage loans on our Condensed Consolidated Statements of Operations.  During 2012, we experienced an increase in origination volume as compared to 2011 primarily due to the efforts to increase our origination capabilities over the past year that included the growth of our small loan business and the increase in our loan origination teams located in offices nationwide.  Recently, we opened new offices in Boston and Chicago in 2011 and Los Angeles and Dallas in 2012 and added small loan production representatives in Dallas and San Francisco.  As a result, origination fees, trading-premium revenues and MSR revenues increased during 2012.

During the first quarter of 2012, we initiated several steps to diversify products we can offer to our customer base.  These steps included: (i) adding a bridge lending capability for financing small multifamily properties through a joint venture with a third party; (ii) negotiating origination agreements with several commercial mortgage-backed securities (“CMBS”) finance companies so that we can offer CMBS mortgage loan products to our clients; and (iii) commencing discussions to source joint venture equity opportunities on multifamily properties for a third party in exchange for first look opportunities to provide debt financing. We expect these initiatives to be fully implemented later in 2012.

We earn mortgage-servicing fees on our servicing portfolio of approximately 1,380 loans.  Our servicing fees provide a stable revenue stream.  Servicing fees are based on contractual terms and earned over the life of a loan.  In addition, we earn interest income from escrow deposits held on behalf of borrowers and on loans while they are being financed by our warehouse line, as well as late charges, prepayments of loans and other ancillary fees.

We have risk-sharing obligations on most loans we originate under the Fannie Mae DUS program.  For a majority of loans originated under the DUS program, we absorb the first 5% of any losses on the unpaid principal balance of a loan if a default occurs; above 5% we share a percentage of the loss with Fannie Mae, with our maximum loss capped at 20% of the unpaid principal balance of a loan.

Our servicing fees for risk-sharing loans include compensation for the risk-sharing obligations and are larger than the servicing fees we receive for loans with no risk-sharing obligations.  We receive a lower servicing fee for loans with modified risk-sharing than for loans with full risk-sharing.  While our origination volume increased significantly from the first quarter of 2011 through the first quarter of 2012, our servicing portfolio only increased slightly due to the increases in originations occurring at a similar rate that loan maturities and payoffs occurred.  However, because our risk-sharing product and the rate of related servicing fees have increased in recent years, we have experienced a larger increase in our overall servicing fees in 2012.

Revenues
For a description of our revenue recognition policies, see Note 2 to our 2011 Form 10-K
			Three Months Ended March 31,
	(dollars in thousands)		2012		2011		% Change
	Interest income		$	813	$	808	0.6	%
	Fee income:
		Mortgage origination fees		1,277		823	55.2
		Mortgage servicing fees		5,269		4,879	8.0
		Other fee income		109		120	(9.2)
	Other:
		Gain on sale of mortgage loans		8,208		4,843	69.5
		Prepayment penalties		162		39	315.4
		Other revenues		537		193	178.2
	Total revenues		$	16,375	$	11,705	39.9	%

- 56 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Fee Income
Mortgage Origination Fees
Mortgage originations for the three months ended March 31 were as follows:
		Three Months Ended March 31,
		2012				2011		% Change
Total mortgage origination activity (1)		$	234,179			$	170,993	37.0	%
Mortgages originated in prior periods and sold during the period			134,728				58,460
Less: mortgages originated but not yet sold(2)			(73,096)				(76,274)
Total mortgage origination activity recognized for GAAP and for which revenue is recognized		$	295,811			$	153,179	93.1	%
				% of Total				% of Total
Fannie Mae		$	184,385	62.3	%	$	142,179	92.8	%
Freddie Mac			69,864	23.6			11,000	7.2
FHA			41,562	14.1			-	-
		$	295,811	100.0	%	$	153,179	100.0	%
(1)	Includes all mortgages funded during the period.
(2)	Included in Other Investments – mortgage loans held for sale.

Our mortgage origination volume recognized for GAAP purposes increased by 93.1% primarily due to an increase in our origination capabilities.  The increase in our origination capabilities includes increasing our origination teams throughout 2011 and the expansion of our small loans initiative, which began in the fourth quarter of 2009, to underwrite and originate smaller loans under our Fannie Mae DUS program.  The small loan division increased originations by 40.9% in the first quarter of 2012 compared to the same period in 2011.

For the three months ended March 31 2011, mortgage origination revenues included a non-refundable origination fee received on a portfolio of loans that were not originated until later in 2011.  These loans were in the application stage at the time the revenue was recognized.  With the exception of such revenue, mortgage origination revenue increased proportionally to mortgage originations for the quarter.

Mortgage Servicing Fees

As previously noted, mortgage servicing fees are a significant source of revenue for us.  Our portfolio of loans has increased slightly due to increases in originations occurring at approximately the same rate that loan maturities, payoffs and refinancing occurred.  While it has been, and will continue to be, a priority of ours to retain maturing loans and refinances in our portfolio, we are experiencing an increase in competition from lenders that had not been active in prior periods, such as banks and life insurance companies.  During the next twenty-four months, 191 loans with an outstanding principal balance of $1.1 billion (which represents 12.6% of the servicing portfolio) are due to mature.

Our portfolio balances at March 31 were as follows:
		March 31,
	(dollars in thousands)	2012		2011		% Change
	Primary servicing portfolio	$	8,367,843	$	8,256,253	1.4	%

The portfolio has increased slightly over the past year; however, due to the nature of more recent originations, we have experienced a greater increase in servicing fees earned from the portfolio.  We currently earn higher servicing fees because we are originating more shared-risk product than in the past.  Loans that are currently being paid off are those with lower servicing fee rates, resulting in a higher weighted-average servicing fee being earned on the portfolio.  Weighted-average servicing rates increased from 24.1 basis points at March 31, 2011 to 25.5 basis points at March 31, 2012.

- 57 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Other

Gain on Sale of Mortgage Loans

We experienced an increase in gain on sales of loans for the quarter ended March 31, 2012 as compared to 2011 due to an increase in MSR balances and premium revenues received on new loans originated.  The valuation of new MSRs resulted in increased revenue of $1.5 million and premium revenues increased by $1.9 million in the 2012 period as compared to the 2011 period primarily as the result of an overall increase in origination volume.

Other Revenues

Other revenues consist primarily of securitization profits on certain of our Freddie Mac loans if Freddie Mac packages the loan into a securitization pool.  During the first quarter of 2012, we received fees on securitizations in the total amount of $147.4 million as compared to $50.9 million in the comparable 2011 period, earning approximately $0.3 million in additional revenues related to this program.

Expenses

Interest expense in the Mortgage Banking segment represents direct financing costs, including asset-backed warehouse lines (used for mortgage loans we originate).  Other major expenses include amortization of MSRs, salaries and other costs of employees working directly in this business.

		Three Months Ended March 31,
(dollars in thousands)		2012		2011		% Change
General and administrative expenses
	Salaries and benefits	$	4,403	$	2,877	53.0	%
	Other		3,420		2,329	46.8
	Total general and administrative		7,823		5,206	50.3
Interest			437		249	75.5
Depreciation and amortization			3,146		2,731	15.2
	Total expenses	$	11,406	$	8,186	39.3	%

- 58 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

General and Administrative

General and administrative expense increased by $2.6 million, primarily due to a $1.6 million increase in salaries and benefit related costs due to the initiatives made throughout 2011 and 2012 to increase origination activity by adding origination teams in certain geographical locations nationwide, as well as continued growth in the team supporting our small loan group.  The number of employees increased by 26 from March 31, 2011 to March 31, 2012.  We also experienced an increase of $0.6 million in broker fees and recruiting costs and $0.4 million in other allocable costs directly related to the increased volume of mortgage loan originations and increased headcount within the segment.

Depreciation and Amortization

Depreciation and amortization expense increased by approximately $0.4 million primarily due to greater MSR values on a larger number of loans in the portfolio being amortized during the quarter ended March 31, 2012 as compared to 2011.

Profitability
Profitability for the Mortgage Banking segment for the three months ended March 31  was as follows:
		Three Months Ended March 31,
	(dollars in thousands)	2012		2011		% Change
	Income before other allocations	$	4,969	$	3,519	41.2	%
	Net income		1,472		1,046	40.7
The change in income before other allocations reflects the revenues and expense changes discussed above.

Asset Management

The Asset Management segment is responsible for the active management of multifamily real estate assets owned by our Affordable Housing Equity Tax Credit Fund Partnerships.  We report on fund performance, manage construction risk during the construction process, actively manage specially serviced assets, including assets where an affiliate of ours has taken over the general partner (“GP”) interest, assets that have gone into default or are in workout, or assets that have been foreclosed on and maximize the value of each asset up to the disposition of assets at the end of the fund’s life.  For these services the Asset Management segment receives agreed upon fees from the Affordable Housing Equity segment.

The Asset Management segment manages construction risk during the construction process and actively manages specially serviced assets for Affordable Housing Debt loans.

We have made significant progress in upgrading and restructuring the Asset Management platform to enhance its reporting and management capabilities by (i) recruiting highly skilled real estate professionals who have significant experience in real estate investment management, (ii) beginning a program of regionalization to place our professionals closer to the assets and developer partners, enhancing the ability to manage, mitigate and solve issues that may occur with assets under management, and (iii) instituting a more extensive series of site and sponsor visits which has enhanced our relationship with developer partners, facilitating greater transparency, information sharing and shared problem solving when issues occur.  Further we have made significant improvement in our technology systems.  We have ensured the integrity of our data , and the enhancements to our systems have provided us with enhanced ability to analyze our portfolio in many ways to better report to our investors and to be able to identify both problems and opportunities with the portfolio.

- 59 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Revenues
For a description of our revenue recognition policies, see Note 2 of our 2011 Form 10-K.
		Three Months Ended March 31,
	(dollars in thousands)	2012		2011		% Change
	Asset management fees	$	5,719	$	5,885	(2.8)	%
	Other revenues		-		45	(100.0)
	Total revenues	$	5,719	$	5,930	(3.6)	%

Asset Management Fees

The decrease in asset management fees is due to the lower number of properties managed in 2012 as compared to the same period in 2011.

Expenses
			Three Months Ended March 31,
	(dollars in thousands)		2012		2011		% Change
	General and administrative expenses
		Salaries and benefits	$	1,880	$	1,979	(5.0)	%
		Other		655		422	55.2
		Total general and administrative		2,535		2,401	5.6
	Depreciation and amortization			36		54	(33.3)
		Total expenses	$	2,571	$	2,455	4.7	%

Profitability
Profitability for the Asset Management segment as of March 31 was as follows:
		Three Months Ended March 31,
	(dollars in thousands)	2012		2011		% Change
	Income before other allocations	$	3,148	$	3,475	(9.4)	%
	Net (loss) income		(621)	$	389	(259.6)
The change in income before other allocations refelcts the revenue and expense changes presented above.

Corporate

Expenses in our Corporate segment include central business functions such as executive, finance and accounting, treasury, marketing and investor relations, operations and risk management, and legal, as well as costs related to general corporate debt.  Because we consider all acquisition-related intangible assets to be Corporate segment assets, the related amortization are also included in this segment.

- 60 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

		Three Months Ended March 31,
(dollars in thousands)		2012		2011		% Change
General and administrative expenses:
	Salaries and benefits	$	4,074	$	3,951	3.1	%
	Other		7,631		6,840	11.6
	Total general and administrative		11,705		10,791	8.5
Interest expense:
	Borrowings and financings		1,229		1,297	(5.2)
Lease termination costs			3,318		-	N/A
Depreciation and amortization			314		440	(28.6)
	Total expenses	$	16,566	$	12,528	32.2	%

General and Administrative:

Other

Other general and administrative expenses increased mainly due to legal fees that we incurred and advisory fees that we were required to reimburse to our lenders relating to the third amendment to our Credit Agreement which we entered into during the first quarter of 2012  and due to expenses we incurred relating to the move to our new headquarters.  These were partially offset by a decrease in our rent expense at our new headquarters as compared to the rent expense at our former headquarters.

Lease Termination Costs

Lease termination costs recorded in the first quarter of 2012 were in connection with the Surrender Agreement and the cease use of the remainder of the space in our former headquarters in February 2012.

Depreciation and Amortization

Depreciation and amortization expense decreased mainly due to certain fixed assets and certain intangible assets that were fully depreciated in 2011 partially offset by the additional leasehold improvements and other fixed assets that we acquired relating to our move to the new headquarters which we started depreciating in February 2012.

Other income
		Three Months Ended March 31,
	(dollars in thousands)	2012		2011		% Change
	Gain on settlement of liabilities	$	-	$	1,756	(100.0)	%

The gain on settlement of liabilities recorded in 2011 is a result of the redemption of Convertible CRA Shares for cash.  The cash payments were less than the carrying value of the convertible shares resulting in a $1.8 million gain on settlement of such liabilities.

Consolidated Partnerships

Consolidated Partnerships include entities in which we have a substantive controlling general partner or managing member interest or in which we have concluded we are the primary beneficiary of a variable interest entity (“VIE”).  With respect to the Tax Credit Fund Partnerships and property-level partnerships for which we have assumed the role of general partner or for which we have foreclosed upon the property (“Tax Credit Property Partnerships”), we have, in most cases, little or no equity interest.

- 61 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

A summary of the impact the Tax Credit Fund Partnerships and Tax Credit Property Partnerships have on our Condensed Consolidated Statements of Operations is as follows:

	Three Months Ended
	March 31,
(in thousands)	2012		2011
Revenues	$	27,577	$	26,258
Interest expense		(13,549)		(12,916)
Other expenses		(66,092)		(54,683)
Other losses		(153,364)		(61,441)
Allocations to limited partners		205,426		102,780
Net impact	$	(2)	$	(2)

The following table summarizes the number of Consolidated Partnerships at March 31:
		2012		2011
	Tax Credit Fund Partnerships		140		141
	Tax Credit Property Partnerships		89		96

Our Affordable Housing Equity segment earns fees from the Tax Credit Fund Partnerships, and our Affordable Housing Debt segment earns interest on mortgage revenue bonds for which Tax Credit Property Partnerships are the obligors.  The Tax Credit Fund Partnerships are tax credit equity investment funds we sponsor and manage.  The Tax Credit Property Partnerships are partnerships for which we have assumed the role of general partner of the property-owning partnership.

Our revenue from Consolidated Partnerships is from assets held in funds that we manage as well as rental income from properties in partnerships we consolidate.    Interest expense is from borrowings to bridge timing differences between when funds deploy capital and when subscribed investments are received for Tax Credit Fund Partnerships (“Bridge Loans”), as well as mortgages and notes held at the Tax Credit Property Partnerships.  Other expenses represent an increase of $7.5 million in the provision for bad debt and an increase of $2.2 million in fees related to property dispositions. In addition, in 2011 a property that was sold recognized a forgiveness of debt of $1.7 million.

Other losses principally represent the equity losses that Tax Credit Fund Partnerships recognize in connection with their investments in non-consolidated Tax Credit Property Partnerships.  The increase in losses during the three months ended March 31, 2012 primarily resulted from an increase of $116.8 million related to impairments recognized on Tax Credit Property Partnership equity investments,  an increase of $5.7 million in expenses recognized by certain Tax Credit Property Partnerships pertaining to the change in value of their interest rate derivatives and an increase of approximately $4.9 million of losses due to properties being sold or foreclosed during 2012, offset by a decrease of $30.1 million in recognized gains, net of losses on the sale of property investments during 2012 and a reduction of $8.8 million in suspended losses for Tax Credit Fund Partnerships whose investment balances in certain Tax Credit Property Partnerships have reached zero.

As third-party investors hold substantially all of the equity interests in most of these entities, we allocate results of operations of these partnerships to third-party investors except for the amounts shown in the table above, which represent our nominal ownership.  Net impact represents the equity loss we earn on our co-investments that is included in our net income (loss).

Expense Allocation

As previously indicated, the Company made a decision in 2011 to allocate certain corporate overhead expenses to the Affordable Housing Equity, Affordable Housing Debt, Mortgage Banking and Asset Management segments.  Corporate expense allocations are presented separately from the direct results of each segment.

- 62 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Eliminations and Adjustments

Transactions between business segments are accounted for as third-party arrangements for the purposes of presenting business segment results of operations.  Inter-segment eliminations include fee income and expense reimbursement for fund management activities that are recorded in our Affordable Housing Equity segment and earned from Consolidated Partnerships; Asset Management fees that are recorded in our Asset Management segment and earned from Affordable Housing Equity; interest on mortgage revenue bonds that are not reflected as sold in Affordable Housing Equity and for which Tax Credit Property Partnerships within Consolidated Partnerships are the obligors; interest charges on outstanding intercompany balances; overhead and other operational charges between segments.

Income Taxes
The following table details the taxable and non-taxable components of our reported income (loss) for the periods ended:
		Three Months Ended March 31,
					% of					% of
(dollars in thousands)		2012			Revenues		2011			Revenues		% Change
Within continuing operations:
	Gain (loss) subject to tax	$	(6,154)		(10.2)	%	$	714		1.5	%	N/M	%
	Loss not subject to tax	$	(203,039)		(336.0)	%	$	(100,978)		(207.3)	%	101.1	%
	Loss before income taxes	$	(209,193)		(346.1)	%	$	(100,264)		(205.8)	%	108.6	%
	Income taxes	$	60		0.1	%	$	193		0.4	%	(68.9)	%
	Effective tax rate – consolidated basis		(0.03)	%				(0.19)	%
	Effective tax rate for corporate subsidiaries subject to tax		(0.98)	%				27.0	%
Within discontinued operations:
	Income (loss) subject to tax	$	-		N/M		$	253		0.5
	Loss before income taxes	$	-		N/M		$	253		0.5
N/M – Not meaningful.

Management has determined that, in light of projected taxable losses for the foreseeable future, any benefit from current losses and deferred tax assets likely will not be realized; hence, a full valuation allowance has been recorded.

Accounting Developments

See the Recently Issued and Adopted Accounting Standards section of Note 1 to the Condensed Consolidated Financial Statements in Part I Item 1 of this Form 10-Q.

Inflation

Inflation did not have a material effect on our results of operations for the periods presented.

- 63 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

SECTION 3 – FINANCIAL CONDITION

Liquidity

The primary objective of managing our liquidity is to ensure that we have adequate resources to accommodate growth of assets under management within our respective businesses, fund and maintain investments as needed, meet all ongoing funding commitments and contractual payment obligations, and pay general operating expenses and compensation.  Liquidity management involves forecasting funding requirements and maintaining sufficient capital to meet the fluctuating needs inherent in our business operations and ensure adequate capital resources to meet unanticipated events.

Our primary short term business needs include payment of compensation and general business expenses, facilitating debt and equity originations, fund management and asset management activities, and funding commitments and contractual payment obligations including debt amortization.  We fund these short-term business needs primarily with cash provided by operations, revolving credit facilities and asset-backed warehouse credit facilities.  Our long term liquidity needs include capital needed for potential strategic acquisitions or the development of new businesses, increased financing capacity to meet growth in our businesses, and the repayment of long-term debt.  Our primary sources of capital to meet long-term liquidity needs include cash provided by operations, term loan and revolver debt.  We are unable to project with certainty whether our long term cash flow from operations will be sufficient to repay our long-term debt when it comes due.  If this cash flow is insufficient, then we may need to refinance such debt or otherwise amend its terms to extend the maturity dates.  We cannot make any assurances that such refinancing or amendments would be available at attractive terms, if at all.  Recent economic events have limited our sources of liquidity in two key areas:

·   the low price of our Common Shares has made obtaining equity capital through equity offerings extremely difficult and uneconomical for us; and

·   the lower level of debt financing available in the marketplace.

We are seeing a renewed interest from corporate investors in the LIHTC equity market.  In 2011, we raised $142.2 million of gross equity in new Affordable Housing Equity Tax Credit Fund Partnerships and continue to actively pursue new opportunities that will generate additional liquidity in the form of fee income for us.

The mortgage loans originated in our Mortgage Banking and Affordable Housing Debt segments are closed in our name using cash borrowed from warehousing and repurchase lenders and sold within one week to three months following the loan closing to the GSEs or to the market as mortgage-backed securities guaranteed by Fannie Mae or Ginnie Mae and are backed by loans that we originate and are generally AAA rated securities.  We use the cash received from the sale to repay the warehouse borrowings.  At March 31, 2012, we had an aggregate outstanding balance of $82.1 million on our warehouse facilities with an average interest rate of 2.40%.

On November 2, 2010, Fannie Mae issued changes to the DUS Capital Standards that became effective January 1, 2011.  Among other provisions, the revised DUS Capital Standards raised the Restricted Liquidity Requirement by 25 basis points on Tier 2 mortgage loans and are being phased-in quarterly through the first quarter of 2014.  The implementation of the revised DUS Capital Standards by the Company through the first quarter of 2014 would increase the collateral required for our existing DUS portfolio by approximately $8.3 million assuming phase in of the full 25 basis point increase in the collateral requirement was applied to our current portfolio balance.  During the three months ended March 31, 2012, the collateral required for our DUS portfolio increased by $0.2 million.  As of March 31, 2012, we are in compliance with the collateral requirement.

As of March 31, 2012, we had 320,291 Convertible CRA Shares outstanding.  As we had not repurchased these Convertible CRA Shares as of January 1, 2012, the holders of the Convertible CRA Shares have the option to require us to purchase the Convertible CRA Shares for the original gross issuance price per share, which totaled approximately $6.0 million as of March 31, 2012.  Pursuant to the terms of the Credit Agreement, we are restricted from meeting this requirement.  A holder (the “Convertible CRA Shareholder”) of 214,247 Convertible CRA Shares (the “Option Shares”) exercised their option to require us to purchase the Option Shares for an aggregate purchase price of approximately $4.0 million on January 4, 2012.  Under the terms of the option agreement, we were required to purchase the Option Shares by January 10, 2012.  Due to the terms of the Credit Agreement that restrict our ability to repurchase the Option Shares, we are currently in discussions with the Convertible CRA Shareholder in an effort to settle this obligation for an amount significantly less than $4.0 million.  We are also in discussions with the other remaining holder of Convertible CRA Shares to explore various ways to mitigate the above-referenced repurchase risk with respect to that holder.  Due to our contractual obligations to certain former holders of our Convertible CRA Shares (the “Former CRA Holders”), the settlement of our obligations to the current holders of Convertible CRA Shares may trigger payments to the Former CRA Holders that agreed to the redemption of their Convertible CRA Shares on terms less favorable than those that are provided to the current holders of Convertible CRA Shares.  We anticipate the settlement of all of our obligations to the current holders of our Convertible CRA Shares and the Former CRA Holders would result in payments totaling less than $6.0 million.  However, we cannot provide assurance that we will be able to reach any settlement with the current holders of our Convertible CRA Shares or the Former CRA Holders.

- 64 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

We continue to actively pursue strategies to maintain and improve our cash flow from operations, including:

·   increasing revenues through increased volume of mortgage originations, fund originations, and growth of assets under management;

·   instituting measures to reduce general and administrative expenses;

·   continuing to sell and/or monetize investments that do not meet our long-term investment criteria;

·   reducing our risk of loss by continuing to improve our Asset Management infrastructure;

·   increasing access to asset-backed warehouse facilities;

·   improving collection of Tax Credit Fund Partnership fees through improved monitoring and asset disposition; and

·   restructuring and execution of agreements to increase cash flow from our Freddie Mac B Certificates.

Notwithstanding current market conditions, management believes cash flows from operations, amounts available to be borrowed under our Revolving Credit Facility, and capacity available under our warehouse facilities are sufficient to meet our current liquidity needs.

Cash Flows
		Three Months Ended
		March 31,
	(in thousands)	2012		2011
	Cash flow provided by (used in) operating activities	$	100,402	$	(3,471)
	Cash flow provided by (used in) investing activities		3,244		(1,728)
	Cash flow (used in) provided by financing activities		(106,054)		7,221
	Net (decrease) increase in cash and cash equivalents	$	(2,408)	$	2,022

Operating Activities

Operating cash flows include the warehousing of mortgage loans that we originate and sell to Fannie Mae and Freddie Mac, each of which has an associated sale commitment that allows us to recoup the full amount expended. The increase in cash flow provided by operating activities during the first quarter of 2012 is primarily attributable to the receipt of $106.1 million from mortgage loans held for sale compared to the use of $4.8 million to fund loans in the first quarter of 2011. Excluding these amounts from both years, cash flows used in operating activities were $5.7 million in the first quarter of 2012 as compared to cash flow provided by operating activities of $1.3 million in the same quarter in 2011.  Such operating cash flow in 2011 was higher mainly due to the $6.6 million that we collected during 2011 upon closing of the LIHTC funds.

Investing Activities

Investing cash flows for 2012 were higher than in 2011.  This was mainly a result of a net increase of $4.2 million in collection of advances to partnerships and a decrease in equity investments partially offset by the increase in cash used in escrows and other cash collateral and in acquisitions of furniture, fixtures and leasehold improvements.

- 65 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Financing Activities

The level of financing inflows and outflows varies with the level of mortgage originations and also impacts operating cash flows as described above.  We finance originations with warehouse lines that are repaid as the loans are sold.  The decrease in cash flow from financing activities is primarily attributable to a net repayment of mortgage banking warehouse and repurchase facilities of $103.6 million during the first quarter of 2012 compared to net draws on our warehouse facilities of $4.9 million during the first quarter of 2011. Excluding these amounts from both years, cash flows used in financing activities in the first quarter of 2012 were $2.4 million as compared to cash flows provided by financing activities of $2.3 million in the first quarter of 2011.  This was mainly a result of the repayment made on the term loan during the first quarter of 2012 as well as the lower borrowing on the revolving credit facility in the current period as compared to the prior year period.

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 (see also Commitments and Contingencies below).

Capital Resources
To fund our operations, we use cash provided by our operations as well as borrowings and other financing arrangements used as capital resources.
The table below reflects our financing obligations at the dates presented:
						March 31, 2012
		March 31,		December 31,		Available to			Maximum
(in thousands)		2012		2011		Borrow			Commitment
	Term loan	$	122,037	$	125,014	$	-		$	122,037
	Revolving credit facility		14,300		12,100		8,928	(1)		37,000
	Mortgage Banking committed warehouse facilities		48,676		105,615		101,324	(2)		150,000
	Mortgage Banking repurchase facilities		-		8,450		-	(2)		N/A
	Multifamily ASAP facility		33,437		71,670		-	(2)		N/A
	Centerline Financial LLC ("CFin" or "Centerline Financial") credit facility		-		-		30,000			30,000
Subtotal			218,450		322,849		140,252
Freddie Mac Secured Financing(3)			615,982		618,163		N/A			N/A
Subtotal (excluding Consolidated Partnerships)			834,432		941,012		140,252
Consolidated Partnerships			137,970		156,643		N/A			N/A
	Total	$	972,402	$	1,097,655	$	140,252
N/A – Not meaningful.
(1) Borrowing availability reduced by outstanding letters of credit in the amount of $13.8 million.  Once these letters of credit are terminated, the $13.8 million associated with these letters of credit may not be redrawn.
(2) Borrowings under these facilities are limited to qualified mortgage loans, which serve as collateral.
(3) Relates to mortgage revenue bonds that we re-securitized but have not been accounted for as sold for accounting purposes (see Note 14 to the condensed consolidated financial statements).

- 66 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Term Loan and Revolving Credit Facility

Our Term Loan matures in March 2017 and has an interest rate of 3.00% over either the prime rate or LIBOR at our election (which currently is LIBOR). We must repay $2.98 million in principal per quarter until maturity, at which time the remaining principal is due.

The Revolving Credit Facility has a total capacity of $37.0 million. The Revolving Credit Facility matures in March 2015 and bears interest at 3.00% over either the prime rate or LIBOR at our election (which currently is LIBOR). The Revolving Credit Facility may be used for LIHTC property investments. As of March 31, 2012, $14.3 million was drawn and $13.8 million in letters of credit were issued under the Revolving Credit Facility. Once terminated, the amount of the Revolving Credit Facility associated with these letters of credit cannot be redrawn. At March 31, 2012, the undrawn balance of the Revolving Credit Facility was $8.9 million.

The Revolving Credit Facility has the following customary financial covenants:

·   minimum ratio of consolidated EBITDA to fixed charges, which became effective for us as of June 30, 2011; and

·   maximum ratio of funded debt to consolidated EBITDA which will become effective for us as of June 30, 2012.

The Term Loan and Revolving Credit Facility agreement (as subsequently amended, the “Credit Agreement”) contains restrictions on distributions.  Under the Credit Agreement, we generally are not permitted to make any distributions or redeem or purchase any of our shares, including Convertible CRA Shares, except in certain circumstances, such as distributions to the holders of preferred shares of Centerline Equity Issuer Trust (“Equity Issuer”), a subsidiary of the Company, if and to the extent that such distributions are made solely out of funds received from Freddie Mac as contemplated by a specified transaction (“EIT Preferred Share Distributions”).

In 2011, we entered into a waiver to the Credit Agreement (the “Waiver”) and two subsequent amendments to the Waiver, which among other things, added covenants to the Credit Agreement that restrict (x) the use of proceeds drawn from our Revolving Credit Facility solely to LIHTC investments, (y) contracts and transactions with Island Centerline Manager LLC, an entity owned and operated by a subsidiary of Island Capital (collectively “Island”), TRCLP, and C-III and their affiliates, subject to certain carve-outs, and (z) other specified material and non-ordinary course contracts and transactions, including property management contracts with Island, TRCLP and C-III and their affiliates.

On February 28, 2012, we entered into a third amendment to the waiver to our Credit Agreement, which among other things:  (i) extended the deadline by which we were required to deliver certain specified financial data and other information to the administrative agent under the Credit Facility and, in certain cases, to the lenders under the Credit Agreement; (ii) included certain conditions subsequent requiring us to deliver additional specified financial data and other information to the administrative agent by certain dates; (iii) granted a waiver of our noncompliance with the Credit Agreement’s Consolidated EBITDA to Fixed Charges Ratio solely with respect to the quarter ended December 31, 2011, although we have determined that we were in compliance with such ratio with respect to the quarter ended December 31, 2011; (iv) required us to pay certain costs and expenses incurred by the administrative agent in administering the Credit Agreement; and (v) requires us to pay prescribed monthly consulting fees to the administrative agent’s consultant.

On May 18, 2012, we entered into a fourth amendment of the Waiver, which among other things: (i) again granted a waiver through July 16, 2012 of our noncompliance with the Consolidated EBITDA to Fixed Charges Ratio covenant contained in our Credit Agreement with respect to the fiscal quarter ended September 30, 2011 which was necessitated by our failure to deliver certain 2012 projections that demonstrate compliance with the financial covenant set forth in the  prior waiver; (ii) granted a waiver through July 16, 2012 of our noncompliance with the Consolidated EBITDA to Fixed Charges Ratio covenant contained in our Credit Agreement with respect to the fiscal quarter ended March 31, 2012; and (iii) waived a requirement that we provide the lenders under our Credit Agreement with certain 2012 projections that demonstrate compliance with the financial covenant.

The waivers granted in the fourth amendment of the Waiver will expire on July 16, 2012, and it is expected that we will not be in compliance with the Consolidated EBITDA to Fixed Charges Ratio covenant in future periods.  While we would pursue any options available to us in order to avoid the consequences of covenant non-compliance (such as obtaining additional waivers for covenant non-compliance, working with our lenders to extend, modify or restructure our debt obligations, dispose of our assets or adjust our business, or otherwise pursue strategic and financial alternatives available to us in order to preserve enterprise value), we can provide no assurance that such efforts would enable us to avoid defaults on or the acceleration of our obligations or if implemented will not involve a substantial restructuring or alteration of our business operations or capital structure .  Our ability to obtain any additional waivers or concessions from our lenders will be impacted by the continued satisfaction of our covenants and obligations under the Credit Agreement, including those requiring scheduled amortization payments, such as the payment due June 30, 2012.  In addition, a default under our Credit Agreement would result in a cross default under our mortgage banking warehouse facilities, which could eliminate our ability to originate mortgage loans, a development that would have a material adverse effect on our business, financial condition and results of operations.  If we do not comply with the covenants and obligations in the Credit Agreement or our other loan agreements, our lenders may choose to declare a default and exercise their remedies, including acceleration of the debt obligations, and as a consequence we may determine it advisable to seek protection under the provisions of the U.S. Bankruptcy Code in order to preserve enterprise value.

- 67 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

During such time that we are in discussions with our lenders regarding a further amendment to the Credit Agreement, we will be permitted to use proceeds drawn from our Revolving Credit Facility solely for LIHTC investments.

Mortgage Banking Warehouse and Repurchase Facilities

On March 31, 2012, we had five warehouse facilities we use to fund our loan originations. Mortgages financed by these facilities (see Note 6 to the condensed consolidated financial statements), as well as the related servicing and other rights (see Note 7 to the condensed consolidated financial statements) have been pledged as security under these warehouse facilities. All loans securing these facilities have firm sale commitments with GSEs or the FHA. Our warehouse facilities include:

·   A $100 million committed warehouse facility that matures in September 2012 and bears interest at a rate of LIBOR plus 2.50%.  The interest rate on the warehouse facility was 2.74% as of March 31, 2012 and 2.80% as of December 31, 2011.

·   We have a $50 million committed warehouse facility that matures in November 2012 and bears interest at a rate of LIBOR plus a minimum of 2.75% and a maximum of 4.25%. The interest rate on the warehouse facility was 2.99% as of March 31, 2012 and 3.05% as of December 31, 2011.

·   Two uncommitted warehouse repurchase facilities that provide additional resources for warehousing of mortgage loans with Freddie Mac and Fannie Mae.  These facilities are scheduled to mature on November 16, 2012 and bear interest at a rate of LIBOR plus 3.50% with a minimum of 4.50% for all Fannie Mae loans and 4.00% for all Freddie Mac loans.

·   An uncommitted facility with Fannie Mae under its Multifamily As Soon As Pooled (“ASAP”) Facility funding program.  After approval of certain loan documents, Fannie Mae will fund loans after closing and the advances are used to repay our warehouse facilities.  Subsequently, Fannie Mae funds approximately 99% of the loan and Centerline Mortgage Capital Inc. (“CMC”) funds the remaining 1%.  CMC is later reimbursed by Fannie Mae when the assets are sold.  Interest on this facility currently accrues at a rate of LIBOR plus 1.35%, with a minimum rate of 1.70%.  The interest rate on this facility was 1.84% as of March 31, 2012 and 1.70% as of December 31, 2011.

We expect to renew the committed warehouse facilities annually.  Our ability to originate mortgage loans depends upon our ability to secure and maintain these types of short-term financings on acceptable terms.

On April 25, 2012, we signed a $75 million committed warehouse facility that matures in April 2013 and bears interest at a rate of LIBOR plus a minimum of 2.50% and a maximum of 3.50%. The new warehouse facility provides us with additional resources for warehousing of mortgage loans relating to our Mortgage Banking and Affordable Housing Debt segments.

Centerline Financial Credit Facility

In June 2006, Centerline Financial entered into a senior credit agreement.  Under the terms of the agreement, Centerline Financial is permitted to borrow up to $30.0 million until its maturity in June 2036, if needed to meet payment or reimbursement requirements under the yield transactions of Centerline Financial (see Note 21 to the condensed consolidated financial statements).  Borrowings under the agreement will bear interest at our election of either:

·   LIBOR plus 0.40% or;

·   1.40% plus the higher of the prime rate or the federal funds effective rate plus 0.50%.

As of March 31, 2012, no amounts were borrowed under this facility.  Neither Centerline Holding Company nor its subsidiaries are guarantors of this facility.  Due to a wind-down event caused by a capital deficiency under Centerline Financial’s operating agreement, which occurred in 2010, the Centerline Financial senior credit facility continues to be in default as of March 31, 2012.  Amounts under the Centerline Financial senior credit facility are still available to be drawn, and we do not believe this default has a material impact on our financial statements or operations.

- 68 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Also as a result of the wind-down event, Centerline Financial is restricted from making any member distributions and is restricted from engaging in any new business.

Consolidated Partnerships

As of March 31, 2012 and December 31, 2011, the capital structure of our Consolidated Partnerships comprised debt facilities that are non-recourse to us, including:

·   notes payable by the Tax Credit Fund Partnerships collateralized either by the funds’ limited partners’ equity subscriptions or by the underlying investments of the funds; and

·   mortgages and notes payable on properties.

Further information about our financing obligations is included under Commitments and Contingencies later in this section.

Commitments and Contingencies

Off Balance Sheet Arrangements

The following table reflects our maximum exposure and the carrying amounts recorded to account payable, accrued expenses and other liabilities as of March  31, 2012 for guarantees we and our subsidiaries have entered into and other contingent liabilities:

	Maximum		Carrying
(in thousands)	Exposure		Amount
Tax Credit Fund Partnerships credit intermediation(1)	$	1,191,342	$	18,837
Mortgage banking loss sharing agreements(2)		882,236		21,715
Credit support to developers(3)		174,754		-
Centerline Financial credit intermediation(4)		33,715		846
Letters of credit		13,772		-
General Partner property indemnifications		1,940		-
Contingent liabilities at the Consolidated Partnerships		11,270		-
	$	2,309,029	$	41,398

(1)	Through the isolated special purpose entities, these transactions were undertaken to expand the Affordable Housing Equity business by offering agreed-upon rates of return to third-party investors for pools of multifamily properties in certain Tax Credit Fund Partnerships.  The carrying values of $18.8 million disclosed above relate to the deferred fees we earn for the transactions that we recognize over the period until maturity of these credit intermediations.
(2)	The loss sharing agreements with Fannie Mae and Freddie Mac are a normal part of the DUS and DUI lender programs.  The carrying value disclosed above is our estimate of potential exposure under the guarantees.  Based on current expectations of defaults in the portfolio of loans, we anticipate that we may be required to pay between $3.0 and $5.0 million in the next 12 months.
(3)	Generally relates 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 Tax Credit Fund Partnerships we manage. To date, we have had minimal exposure to losses under these guarantees.

- 69 -

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

(4) These transactions were undertaken to expand our Credit Risk Products business by offering credit intermediation to third-party 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 deferred fees we earn for the transactions that we recognize over the period until maturity of these derivatives.

The maximum exposure amount is not indicative of our expected losses under the guarantees.  For details of these transactions, see Note 21 to the condensed consolidated financial statements.

·   business limitations caused by adverse changes in real estate and credit markets and general economic and business conditions;

·   risks related to the form and structure of our financing arrangements;

·   our ability to generate new income sources, raise capital for investment funds and maintain business relationships with providers and users of capital;

·   changes in applicable laws and regulations;

·   our tax treatment, the tax treatment of our subsidiaries and the tax treatment of our investments;

·   competition with other companies;

·   risk of loss associated with our mortgage originations;

·   risks associated with providing credit intermediation; and

·   risks associated with enforcement by our creditors of any rights or remedies which they may possess.

These risks are more fully described in our 2011 Form 10-K.  We caution against placing undue reliance on these forward-looking statements, which reflect our view only as of the date of this report.  We are under no obligation (and expressly disclaim any obligation) to update or alter any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or change in events, conditions, or circumstances on which any such statement is based.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.

Not required.

- 70 -

Item 4.  Controls and Procedures.

a) Evaluation of Disclosure Controls and Procedures

Our President and Chief Operating 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, they 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 President and Chief Operating Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

b) Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.  Legal Proceedings.

From time to time, the Company may become involved in various claims and legal actions arising in the ordinary course of business.  In the opinion of management, the ultimate disposition of these matters will not have a material effect on the Company’s condensed consolidated financial statements and therefore no accrual is required as of March 31, 2012.

Item 1A.  Risk Factors.

The following risk factor amends and supersedes the risk factor entitled “We may be unable to raise capital or access financing on favorable terms, or at all, and we may also be unable to repay or refinance our debt obligations,” contained in our Form 10-K for the fiscal year ended December 31, 2011, which was filed on March 29, 2012 (our “2011 Form 10-K”).  Other than the change to the risk factor noted above, there have been no material changes to the risk factors previously disclosed in our 2011 Form 10-K. In addition to the other information discussed in this quarterly report on Form 10-Q, please consider the risk factor set forth below and those set forth in our 2011 Form 10-K, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may adversely affect our business, financial condition or operating results.

We may be unable to raise capital or access financing on favorable terms, or at all, and we may also be unable to repay or refinance our debt obligations, which could result in our seeking protection under the provisions of the U.S. Bankruptcy Code

Our outstanding debt could limit our operational flexibility, limit our ability to raise additional capital, limit our ability to invest in new businesses, limit our ability to take advantage of opportunities to diversify and acquire other companies or otherwise adversely affect our financial condition.  Capital limitations could affect our ability to grow assets under management, a major aspect of our business plan, as we achieve at least part of this growth by initially warehousing investments for new Tax Credit Fund Partnerships, which requires capital.  Furthermore, our ability to raise capital has been negatively impacted by our low Common Share price and the lower level of debt financing available in the marketplace.

We are subject to the risks normally associated with outstanding debt, including the risks that:

·   our cash flow from operations may be insufficient to make required payments of principal and interest;

·   our vulnerability to downturns in our business is increased, requiring us to reduce expenditures we need to expand our businesses;

·   we may be unable to refinance existing indebtedness; and the terms of any refinancing may be less favorable than the terms of existing indebtedness; and

·   we may be unable to satisfy ongoing financial and other covenants, which if not waived or amended by our lenders, could lead to accelerations of, and cross-defaults on, our debt obligations.

In March 2010, we entered into a Second Amended and Restated Revolving Credit And Term Loan Agreement and have subsequently entered into a waiver agreement and three amendments to that waiver agreement (as amended by the waiver agreements, the “Credit Agreement”).  The Credit Agreement places certain restrictions on our activities, including, among other things:

·   limitations on our incurring additional unsecured indebtedness without lender approval;

·   restrictions on our ability to make any distributions or redeem or purchase any of our shares including Series A Convertible Community Reinvestment Act Preferred Shares (“Convertible CRA Shares”), except in certain circumstances, such as distributions to the holders of preferred shares of Centerline Equity Issuer Trust (“Equity Issuer”), a subsidiary of the Company, if and to the extent that such distributions are made solely out of funds received from Freddie Mac as contemplated by a specified transaction (“EIT Preferred Share Distributions”);

·   limitations on our ability to make new business investments without lender approval; and

·   restrictions on our ability to conduct transactions with our affiliates.

We must repay $2.98 million in principal per quarter on our Term Loan until maturity in March 2017 at which time the remaining principal is due.  Our Revolving Credit Facility matures in March 2015.

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We were out of compliance with the Consolidated EBITDA to Fixed Charges Ratio covenant of the Credit Agreement with respect to the quarters ended September 30, 2011 and March 31, 2012, and have received waivers with respect to such noncompliance from the lenders under the Credit Agreement.   The current waiver will expire on July 16, 2012, and it is expected that we will not be in compliance with the Consolidated EBITDA to Fixed Charges Ratio covenant in future periods.  While we would pursue any options available to us in order to avoid the consequences of covenant non-compliance (such as obtaining additional waivers for covenant non-compliance, working with our lenders to extend, modify or restructure our debt obligations, dispose of our assets or adjust our business, or otherwise pursue strategic and financial alternatives available to us in order to preserve enterprise value), we can provide no assurance that such efforts would enable us to avoid defaults on or the acceleration of our obligations or if implemented will not involve a substantial restructuring or alteration of our business operations or capital structure. Our ability to obtain any additional waivers or concessions from our lenders will be impacted by the continued satisfaction of our covenants and obligations under the Credit Agreement, including those requiring scheduled amortization payments, such as the payment due June 30, 2012.  In addition, a default under our Credit Agreement would result in a cross default under our mortgage banking warehouse facilities, which could eliminate our ability to originate mortgage loans, a development that would have a material adverse effect on our business, financial condition and results of operations.  If we do not comply with the covenants and obligations in the Credit Agreement or our other loan agreements, our lenders may choose to declare a default and exercise their remedies, including acceleration of the debt obligations, and as a consequence we may determine it advisable to seek protection under the provisions of the U.S. Bankruptcy Code in order to preserve enterprise value.

See the description of our existing facilities under Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – SECTION 3 – Financial Condition.

We rely on debt capital to finance our business.  If the lower level of debt financing available in the marketplace continues, we may be unable to achieve our strategic goals.  Any debt we may be able to arrange may carry a higher rate of interest than our current debt, thereby decreasing our net income and cash flows.  As a result, certain growth initiatives could prove more costly or not economically feasible.  A failure to meet required amortization  payments under, or satisfy covenants imposed by, our debt facilities, renew our existing credit facilities, to increase our capacity under our existing facilities or to add new or replacement debt facilities could have a material adverse effect on our business, financial condition and results of operations.

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

Securities purchased by us

The Board of Trustees has authorized a Common Share repurchase plan, enabling us to repurchase, from time to time, up to 3.0 million Common Shares in the open market; however, under the terms of our Term Loan and Revolving Credit Facility, we were restricted from acquiring capital stock while such facilities were outstanding.  The following table presents information related to repurchases of our equity securities during the first quarter of 2012 and other information related to our repurchase program:

				Total number	Maximum
				of shares	number
				purchased as	of shares that
				part of	may yet be
	Total	Weighted		publicly	purchased
	number of	average		announced	under the
	shares	price paid		plans	plans or
Period	purchased	per share		or programs	programs
January 1 – 31, 2012	-	$	-	-	-
February 1-29, 2012	-		-	-	-
March 1-31, 2012	-		-	-	-
Total	-	$	-	-	303,854

Other information required by this item, as well as information regarding our share repurchase program and share compensation paid to our independent trustees, is included in Note 25 to our 2011 Form 10-K.

During the first quarter of 2012, we did not sell any securities that were not registered under the Securities Act of 1933.

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Item 3. Defaults upon Senior Securities.  None.

Item 4. Mine Safety Disclosures.  Not applicable

Item 5. Other Information.  None.

Item 6.	Exhibits.
	31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
	31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1	Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101	Interactive Data File
*	Filed herewith.

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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: May 21, 2012	By:	/s/ Robert L. Levy
		Robert L. Levy President and Chief Operating Officer  (Principal Executive Officer)

Date: May 21, 2012	By:	/s/ Michael P. Larsen
		Michael P. Larsen Chief Financial Officer  (Principal Financial Officer)

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Exhibit 101

INTERACTIVE DATA FILE

The following materials from Centerline Holding Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2012, formatted in XBRL:  (i) Condensed Consolidated Balance Sheets at March 31, 2012 and December 31, 2011; (ii) Condensed Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011; (iii) Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 and 2011; (iv) Condensed Consolidated Statement of Changes in Equity for the three months ended March 31, 2012; (v) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011; and (vi) Notes to the Condensed Consolidated Financial Statements.

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