UPDATE:
I stepped through mvc source code (particularly DefaultModelBinder class) and here is what I found:
The class determines we are trying to bind a collection so it calls the method: UpdateCollection(...) which creates an inner ModelBindingContext that has a null Model property. Afterwards, that context is sent to the method BindComplexModel(...) which checks the Model property for null and creates a new instance of the model type if that is the case. 
That's what causes the values to be reset. 
And so, only the values that are coming through the form/query string/route data are populated, the rest remains in its initialized state.
I was able to make very few changes to UpdateCollection(...) to fix this problem.
Here is the method with my changes:
internal object UpdateCollection(ControllerContext controllerContext, ModelBindingContext bindingContext, Type elementType) {
IModelBinder elementBinder = Binders.GetBinder(elementType);
// build up a list of items from the request
List<object> modelList = new List<object>();
for (int currentIndex = 0; ; currentIndex++) {
    string subIndexKey = CreateSubIndexName(bindingContext.ModelName, currentIndex);
    if (!DictionaryHelpers.DoesAnyKeyHavePrefix(bindingContext.ValueProvider, subIndexKey)) {
        // we ran out of elements to pull
        break;
    }
    // **********************************************************
    // The DefaultModelBinder shouldn't always create a new
    // instance of elementType in the collection we are updating here.
    // If an instance already exists, then we should update it, not create a new one.
    // **********************************************************
    IList containerModel = bindingContext.Model as IList;
    object elementModel = null;
    if (containerModel != null && currentIndex < containerModel.Count)
    {
        elementModel = containerModel[currentIndex];
    }
     //*****************************************************
    ModelBindingContext innerContext = new ModelBindingContext() {
        Model = elementModel, // assign the Model property
        ModelName = subIndexKey,
        ModelState = bindingContext.ModelState,
        ModelType = elementType,
        PropertyFilter = bindingContext.PropertyFilter,
        ValueProvider = bindingContext.ValueProvider
    };
    object thisElement = elementBinder.BindModel(controllerContext, innerContext);
    // we need to merge model errors up
    VerifyValueUsability(controllerContext, bindingContext.ModelState, subIndexKey, elementType, thisElement);
    modelList.Add(thisElement);
}
// if there weren't any elements at all in the request, just return
if (modelList.Count == 0) {
    return null;
}
// replace the original collection
object collection = bindingContext.Model;
CollectionHelpers.ReplaceCollection(elementType, collection, modelList);
return collection;
}