The multifamily segments within Fannie Mae and Freddie Mac remain largely profitable, making them possible models for the GSEs' single-family segments to follow, analysts with Keefe, Bruyette Woods said Thursday.

The success of multifamily is largely attributed to the risk-sharing structures employed by Fannie and Freddie, KBW analysts Bose George, Jade Rahmani and Ryan O'Steen said in their latest report.

In 2011, Freddie Mac's pre-tax income hit $1.3 billion, while Fannie's reached $644 million.  KBW believes the GSEs' earnings report (as pictured below) shows the general profitability of the multifamily segments.  

KBW attributes Fannie and Freddie's success in multifamily to risk-sharing requirements, with Fannie making originators maintain a stake in the portfolio's credit loss while Freddie Mac sells first loss credit risk to bondholders—a model the research firm believes could work for the GSE's single-family portfolios.

"We believe that this risk-sharing component was a key driver of the strong credit performance of the GSE multifamily programs," KBW asserted in its report.

Currently, the GSEs have a distinct advantage over other lenders by essentially functioning as the nation's top two lenders, the research firm added. However, the risk-sharing structures built into the platforms also may be forcing borrowers to handle these relationships with additional care.

"The success and growth of the GSE multifamily segment has raised the profile of these businesses," the report said. "We believe that the FHFA's call for the GSEs to explore privatization of these businesses is unlikely to result in any near-term change, especially if the economy remains weak. However, over the long term, a smaller role for the GSEs in the multifamily market is likely and we anticipate the same in the single-family market."

KBW suggested that the multifamily structure is a positive template for the single-family mortgage market to follow as the FHFA tries to pull private capital back into the market while reducing risk to the government's credit profile.