Low interest rates and the government’s Home Affordable Refinance Program have supported strong mortgage refinance volumes, which have buoyed third-quarter bank earnings.

Refinancing volume likely will remain strong well into 2013, Keefe, Bruyette & Woods said Monday, noting that it and others had previously doubted the sustainability of the refinance wave.

"First, we expect mortgage interest rates to consumers to continue to decline as more lenders are drawn into the business due to high spreads and the Fed's recognition of the negative impact from regulatory constraints on lending," KBW said in a research note. "Second, we expect government programs such as HARP to continue to find ways help homeowners with high loan-to-value ratios. Third, we expect the credit scores on Fannie Mae and Freddie Mac mortgages to fall from elevated levels back to historical averages."

Falling credit scores on Fannie and Freddie mortgages, alone, could add $450 billion to refis in 2013, or approximately two quarters of volume at the current pace of activity.

Continued high refinance volumes at lower spreads will have mixed impacts on bank and other financial firms earnings next year, KBW said.

Mortgage-banking income will likely remain elevated, even if somewhat lower due to pressure on spreads. "On the other hand, security yields will be under increasing pressure as prepayment speeds on mortgage bonds remain high," KBW said.