Who is required to keep the original note and mortgage documents in their possession? Is it the lender or do they transfer to the loan servicer? When a mortgage is assigned to another bank, is that bank now called the lender? It appears these big banks have ignored the law in many cases, but what does the law really say?

The law does not require which party must hold the original loan documents. The law merely says that the lender cannot sue the borrower for payment of the loan without the original Note.

When a loan gets assigned, the new holder of the loan becomes the lender.

The problem here is the growth of mortgage backed securities. Lenders will package hundreds of mortgages and then sell them as a single security instrument. In doing so, they are supposed to package all the documentation, but that has been lax in the past with the resulting problems in documentation for foreclosures.

No there have been no laws "ignored", but there has been some abuse in filing for foreclosures. However, most of the time, the borrower/homeowner has truly defaulted. Mortgage servicers DO keep good records of payments and balances.

The real problem here is that lenders made a lot of risky loans figuring the real estate market would continue to grow and build equity for homeowners to cover them in the case of default. When the real estate market went bust, too many people were caught with upside down mortgages.