SALEM — As Democrats and Republicans begin its special session today, a few areas could stir some heated debate, including a topic that’s shaping up to be one of the few divisive issues of the session: Reforms to the mortgage lending industry, hard on the heels of the national subprime mortgage collapse.

Most Democrats are lining up behind an ambitious proposal sponsored by State Sen. Ben Westlund, D-Bend, a series of reforms that govern mortgage transactions from the very beginning, when lenders and home-buyers first meet.

“This crisis has grown much larger in magnitude,” Westlund said. “It’s about being able to get the best deal on the biggest purchase most of us will ever make.”

Republicans, however, smell a rat, pointing out that similar legislation died on the floor of the Democrat-controlled Oregon House during the 2007 session, under heavy industry opposition. The bill is pure politics, they contend, designed to catapult Westlund — the Democrats’ candidate for State Treasurer — into the political spotlight.

“This is broadly based, sweeping legislation, and there’s not a likelihood that it passes in this session,” said Senate Minority Leader Ted Ferrioli, R-John Day. “Is this politicking? A populist gesture?”

Subprime loans are mortgages with high interest rates and fees that are generally offered to high-risk borrowers.

Thousands of homeowners nationwide have defaulted on such loans in the last year, sparking fears of a national recession. The problem has been more muted in Oregon, though — a survey by the Mortgage Bankers Association showed that only 3,700 of Oregon’s 646,000 outstanding home loans were in foreclosure.

Westlund’s legislation would require creditors to verify that a borrower can repay a loan, and ban any financial incentive to steer borrowers toward higher-cost loans. The bill would also limit prepayment penalties, which force buyers who manage to pay off their entire loan to pay a fine.

A separate package of legislation, crafted by a mortgage lending workgroup convened by Democratic Gov. Ted Kulongoski, is less far-reaching, and seems virtually certain to pass without controversy, even in the short, 20-day session.

That legislation would regulate predatory lending scams, when fly-by-night lenders kick homeowners when they are down, by offering them sketchy refinancing or buyout offers.

Also proposed is better language around foreclosure notices, so that homeowners in that situation can clearly grasp their options.

Mortgage lenders themselves argue that any substantive state action is premature, since the Congress and the Federal Reserve are expected to issue new mortgage processing rules within the next year.

“It’s all a little premature, until we know what is going to happen at the national level,” said Pete Behr, with Q10 National Mortgage in Portland.

Ferrioli also points out that the federal reserve’s recent interest rate cuts will create “credit opportunities for people at a time when they ought to refinance for a fixed rate. The market is responding to this issue more quickly and more effectively than 50 state legislatures will.”

But consumer advocates say there is no time to spare. Oregon may not be the national poster child for the subprime crisis, but the rate of foreclosures is rising in the state, they say, and the state’s most vulnerable are among the easiest targets.

“The elderly, they have more equity in their homes, they may have limited income but this one asset, so faced with health care or home repair costs, they look to equity in their homes,” said Rick Bennett, a lobbyist for AARP Oregon. “They have been bombarded with marketing efforts. And then that first reset comes up, and you find that you can’t afford that loan anymore.”