"What to do?"
What they are supposed to do when people make stupid financial decisions. NOTHING.
For the first time in quite a few years, I know of people in California being forced to sell their homes. They bought them with 0 down, and the prices have dropped. Now, they really can't afford them. Homes around this area start at 700-800 K. I can't even imagine buying a home with 0 down, and having an 800K mortgage.
I think people thought the housing market would always go up, and they didn't plan on having to ride out some bad times.
I grew up in Dallas, and I knew to plan on riding out bad times.