Republicans are reacting coolly to a financial sector bailout proposed by Senate Banking, Housing and Urban Affairs Chairman Chris Dodd (D-Conn.).

Calling Dodd’s discussion draft a “nonstarter,” one senior Senate GOP aide said the proposal raises red flags for Republicans because it does not return all profits back to the federal Treasury and would rewrite bankruptcy laws.

Dodd’s measure would route 20 percent of the revenue from the government’s sale of troubled mortgages to the Housing Trust Fund and the Capital Magnet Fund, rather than to the Treasury, which is supplying the funds to buy problematic mortgages. The $700 billion bailout proposal would authorize the Treasury secretary to buy mortgages that have sparked the failure of major investment banks and a near meltdown on Wall Street.

Dodd’s plan also adopts a controversial provision that would allow bankruptcy judges to write down the value of mortgages on primary residences. Lenders already jettisoned that provision in the housing bill Congress passed earlier this year, arguing that it could result in increased mortgage loan rates.

Additionally, Dodd’s bill would seek to cap the compensation for outgoing executives – a provision both the administration and Republicans oppose as too punitive.