Bending over backwards to minimize defaults and to keep the game going.
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Scott Simon, Managing Director at PIMCO discourses on the quality of the buyers, the actions of the lenders to deal with prospective defaults etc. here:

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We’ve looked at finance companies across the board to see whether their margins are going to get compressed. In the last six or seven years, the finance industry found ways for people to borrow money who had never borrowed money before. These borrowers have low FICO scores and are not in very good shape financially. We are going to see $500 billion in these subprime loans this year alone. Homeownership in the U.S. has gone from 64% to 69% in large part because those people can now buy houses.

For literally a year, as interest rates were going up, the subprime lenders absorbed a lot of the rate hikes by just compressing margins. However, margins at most of the lenders have been compressed as much as they can be, ...

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In the past few years, when borrowers have had trouble making their mortgage payments, some lenders have allowed the borrowers to take equity out of their homes and refinance. Therefore, these borrowers didn’t count as delinquencies in the official data; they showed up as voluntary prepayments instead. This trend has resulted lately in the lowest losses we’ve ever seen in the mortgage market. We think that the historical data currently understates delinquencies and overstates voluntary prepayments by a very substantial margin.

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If you look at where savings rates are, people basically aren’t saving; they are spending everything. They are consuming out of their wealth—taking money out of their houses in the form of home equity loans or mortgage refinancings. In a lot of the really "bubbly" looking areas—the really expensive real estate markets—not only are people taking out more aggressive loans—interest-only and other payment option ARMs—but they also have a much higher percentage of their income going to mortgage payments.

We’ve seen some lending programs where your payment can be as much as 45% of your income. That’s awfully high. Does that person have a lot of room to get in trouble? Yes. If they lose their job, if they have a health problem, or if they need something fixed in their house, they just don’t have any extra money. A slower housing market and a slower economy can have all sorts of ramifications that would affect these borrowers.

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dali lama - no way this will deflate slowly. The problem is too large for that to occur. The interest rates MUST keep increasing to attract foreign spending on our debt. Spending will only accelerate in the comming year, which means interest rates will rise. China/Japan have not been buying our treasuries as they did in previous years and England/Carribean cannot continue to prop up our bonds. We are pinned in a corner and either the interest rates climb high or we simply print the money we can't raise. My prediction is that this administration will continue on its path. Very stubborn indeed. They will see a recession comming and freeze the rate hikes around 5%, but that's already too high. When this happens gold will finally be off and running. They will turn on the press and flood the system with liquidity and start to drop the rates again. But its already too late! We will see a financial crisis by the end of 2007. Housing is the straw our economy is balanced on. Do you know what happens when you have a single point of failure ... and it fails?