Edgar Filing: DYNEX CAPITAL INC

DYNEX LOGO

Dynex Capital, Inc.

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Notice of Annual Meeting of Stockholders
and
Proxy Statement

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Annual Meeting of Stockholders
May 30, 2003

DYNEX LOGO

DYNEX CAPITAL, INC.

April 21, 2003

To Our Stockholders:

You are cordially invited to attend the Annual Meeting of Stockholders of
Dynex Capital, Inc. (the "Company") to be held at The Place At Innsbrook located
at 4036 Cox Road, Glen Allen, Virginia on Friday, May 30, 2003, at 9:00 a.m.
Eastern Time.

The business of the meeting is to consider and act upon (i) the election
of directors of the Company, and (ii) approve the appointment of Deloitte &
Touche LLP, independent certified public accountants, as auditors for the
Company.

While stockholders may exercise their right to vote their shares in
person, we recognize that many stockholders may not be able to attend the Annual
Meeting. Accordingly, we have enclosed a proxy which will enable you to vote
your shares on the issues to be considered at the Annual Meeting even if you are
unable to attend. All you need to do is mark the proxy to indicate your vote,
date and sign the proxy, and return it in the enclosed postage-paid envelope as
soon as conveniently possible. If you are a common stockholder and desire to
vote your shares of common stock in accordance with management's
recommendations, you need not mark your votes on the proxy but need only sign,
date and return the common proxy card in the enclosed postage-paid envelope in
order to record your vote. If you are a preferred stockholder and desire to vote
your shares of preferred stock for one or both of the preferred nominees, you
must mark your votes on the preferred proxy card and return such proxy card in
the enclosed postage-paid envelope in order to record your vote.

Sincerely,

Eric P. Von der Porten
Chairman of the Board

Stephen J. Benedetti
Executive Vice President and
Chief Financial Officer

DYNEX LOGO

DYNEX CAPITAL, INC.

4551 Cox Road, Suite 300
Glen Allen, Virginia 23060
(804) 217-5800
----------------------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Our Stockholders:

The Annual Meeting of Dynex Capital, Inc. (the "Company") will be held at
The Place At Innsbrook located at 4036 Cox Road, Glen Allen, Virginia on Friday,
May 30, 2003, at 9:00 a.m. Eastern Time, to consider and act upon the following
matters:

1. Holders of our common stock will:

A. Elect five (5) directors of the Company, to hold office until
the next annual meeting and until their successors are elected
and duly qualified;

B. Consider and ratify the selection of Deloitte & Touche LLP,
independent certified public accountants, as auditors for the
Company; and

C. Transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.

2. Holders of our preferred stock will:

A. Elect two (2) directors of the Company, to hold office until
the earlier of (i) the next annual meeting and until their
successors are elected and duly qualified, or (ii) the date
upon which the consolidated shareholders' equity of the
Company at the end of any subsequent calendar quarter equals
or exceeds 150% of the aggregate liquidation preference of the
then outstanding preferred stock (provided that there shall
not then be arrears on the dividends on Series A, Series B or
Series C Preferred Stock).

Only stockholders of record at the close of business on April 18, 2003,
the record date, will be entitled to vote at the Annual Meeting.

Management desires to have maximum representation at the Annual Meeting
and respectfully requests that you date, execute and promptly mail the enclosed
proxy in the accompanying postage-paid envelope. A proxy may be revoked by a
stockholder by notice in writing to the Secretary of the Company at any time
prior to its use, by presentation of a later-dated proxy, or by attending the
Annual Meeting and voting in person.

By order of the Board of Directors

Stephen J. Benedetti
Secretary

Dated: April 21, 2003

DYNEX LOGO

4551 Cox Road, Suite 300
Glen Allen, VA 23060
(804) 217-5800

[MAP OMITTED]

Directions from the North on Interstate 95:
Take the Interstate 295 West-Charlottesville exit. Travel approximately 8.5
miles on Interstate 295 West towards Charlottesville. Take the Nuckols
Road-South Exit. Travel approximately 1.0 miles to the second stop light at the
corner of Cox and Nuckols Road. Turn right on Cox Road. Travel approximately 1.5
miles. Turn right at third stop light at Broad Street. Travel approximately 0.5
miles. Turn right at Dominion Boulevard. Travel approximately 0.2 miles. Turn
right at The Place entrance.

Directions from the Richmond International Airport:
(In regards to the map above - Interstate 64 should be used as a reference point
only)
As you leave the airport on 156 North-Airport Drive follow the "to 295-North"
signs. You will pass the Interstate 64 East and West exits and the Interstate
295 South exit. After these exits, continue on 156 North-Airport Drive
approximately 2.5 miles. Take the "295 North to 95-North and 64-West" exit North
towards Washington. Stay on Interstate 295 North for approximately 19.5 miles.
Take the Nuckols Road-South Exit. Travel approximately 1.0 miles to the second
stop light at the corner of Cox and Nuckols Road. Turn right on Cox Road. Travel
approximately 1.5 miles. Turn right at third stop light at Broad Street. Travel
approximately 0.5 miles. Turn right at Dominion Boulevard. Travel approximately
0.2 miles. Turn right at The Place entrance.

Directions from the South or Downtown Richmond:
Take Interstate 64 West to Interstate 295 towards Washington. Take the first
exit - Nuckols Road South. Travel approximately 1.0 miles to the second stop
light at the corner of Cox and Nuckols Road. Turn right on Cox Road. Travel
approximately 1.5 miles. Turn right at third stop light at Broad Street. Travel
approximately 0.5 miles. Turn right at Dominion Boulevard. Travel approximately
0.2 miles. Turn right at The Place entrance.

DYNEX LOGO

DYNEX CAPITAL, INC.
4551Cox Road, Suite 300
Glen Allen, Virginia 23060
(804) 217-5800
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
May 30, 2003

To Our Stockholders:
--------------------

This Proxy Statement is furnished with the solicitation by the Board of
Directors of Dynex Capital, Inc. (the "Company") of proxies to be used at the
Annual Meeting of Stockholders of the Company to be held at The Place At
Innsbrook located at 4036 Cox Road, Glen Allen, Virginia on Friday, May 30,
2003, at 9:00 a.m. Eastern Time. The Annual Meeting is being held for the
purposes set forth in the accompanying notice of Annual Meeting of Stockholders.
This Proxy Statement, the accompanying proxy card and the notice of Annual
Meeting are being provided to stockholders beginning on or about April 28, 2003.

GENERAL INFORMATION
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Solicitation
------------

The enclosed proxy is solicited by the Board of Directors of the Company.
The costs of this solicitation will be borne by the Company. Proxy solicitations
will be made by mail, and also may be made by personal interview, telephone and
telegram by directors and officers of the Company. Brokerage houses and nominees
will be requested to forward the proxy soliciting material to the beneficial
owners of the Company's common stock and preferred stock and to obtain
authorization for the execution of proxies. The Company will, upon request,
reimburse such parties for their reasonable expenses in forwarding these proxy
materials to such beneficial owners. Additionally, the Company has engaged the
firm of MacKenzie Partners, Inc., New York, New York, to conduct proxy
solicitations on its behalf at a cost estimated to be $5,000, plus reasonable
out-of-pocket expenses.

Voting Rights
-------------

Common Stock. Holders of shares of the Company's common stock at the close
of business on April 18, 2003, the record date, are entitled to notice of, and
to vote at, the Annual Meeting. On that date 10,873,903 shares of common stock
were outstanding. Each share of common stock outstanding on the record date is
entitled to one vote for each of five directors to be elected by the holders of
common stock and one vote on each other matter presented to common stockholders
at the Annual Meeting. The presence, in person or by proxy, of common
stockholders entitled to cast a majority of all the votes entitled to be cast
constitutes a quorum for the transaction of business at the Annual Meeting.

Preferred Stock. Holders of shares of the Company's preferred stock at the
close of business on April 18, 2003, the record date, are entitled to notice of,
and to vote at, the Annual Meeting, voting as a single class, to elect two
directors to the Company's Board of Directors. The holders of preferred stock
are not entitled to vote on any other matter. The following table sets forth the
number of shares of each class of preferred stock outstanding as of April 18,
2003 and the votes applicable to each such class:

Aggregate Number Of Aggregate Number Of
Class Shares Votes Per Share Votes
----- ------------------- --------------- -------------------

Series A Cumulative Convertible Preferred Stock 493,595 1.000 493,595
("Series A Preferred Stock")

Series B Cumulative Convertible Preferred Stock 688,189 1.021 702,641
("Series B Preferred Stock")

Series C Cumulative Convertible Preferred Stock 684,893 1.250 856,116
("Series C Preferred Stock")

Pursuant to the Company's Articles of Incorporation, each share of
preferred stock is entitled to one vote per $24.00 of stated liquidation
preference. As of the record date, the stated liquidation preference of the
Series A Preferred Stock was $24.00 per share, the stated liquidation preference
of the Series B Preferred Stock was $24.50 per share, and the stated liquidation
preference of the Series C Preferred Stock was $30.00 per share. Accordingly,
holders of the Series A Preferred Stock will be entitled to 1.000 vote per
share, holders of the Series B Preferred Stock will be entitled to 1.021 votes
per share, and holders of the Series C Preferred Stock will be entitled to 1.250
votes per share.

Voting of Proxies - Common Stock
--------------------------------

A proxy card, indicating COMMON shares, is being sent to the holders of
the Company's common stock (the "common proxy"). Shares of common stock
represented by a properly executed common proxy received in time for the Annual
Meeting will be voted in accordance with the choices specified in such common
proxy. If no instructions are indicated on the common proxy, the shares of
common stock will be voted FOR the election of the nominees named in this Proxy
Statement as common stockholder directors. If no instructions are indicated on
the common proxy, shares of common stock will be voted FOR the appointment of
Deloitte & Touche LLP as the Company's auditors.

Voting of Proxies--Preferred Stock
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A proxy card, indicating PREFERRED shares, is being sent to holders of the
Company's preferred stock (the "preferred proxy"). Shares of preferred stock
represented by a properly completed and executed preferred proxy received in
time for the Annual Meeting will be voted in accordance with the choices
specified in such preferred proxy. If a preferred proxy is not completed in
accordance with its instructions or no choices are specified on the preferred
proxy, the shares of preferred stock represented by such preferred proxy will
not be voted.

Revocability of Proxy
---------------------

The giving of the enclosed proxy does not preclude the right to vote in
person should the stockholder giving the proxy so desire. A proxy may be revoked
at any time prior to its exercise by delivering a written statement to the
Secretary of the Company that the proxy is revoked, by presenting to the Company
a later-dated proxy executed by the person executing the prior proxy, or by
attending the Annual Meeting and voting in person.

Annual Report on Form 10-K
--------------------------

The Annual Report on Form 10-K, including financial statements for the
year ended December 31, 2002, which are being mailed to stockholders together
with this Proxy Statement, contains financial and other information about the
activities of the Company, but is not incorporated into this Proxy Statement and
is not to be considered a part of these proxy soliciting materials.

ELECTION OF DIRECTORS
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General
-------

Common Stock Directors. Five directors of the Company are to be elected by
the holders of the Company's common stock at the Annual Meeting to serve until
the next annual meeting and until their successors are elected and duly
qualified. On the recommendation of the Nominating Committee, the Board of
Directors has nominated Mr. Thomas B. Akin, Mr. J. Sidney Davenport, Mr. Thomas
H. Potts, Mr. Donald B. Vaden and Mr. Eric P. Von der Porten for election by the
holders of the Company's common stock to the Board of Directors at the Annual
Meeting. Unless otherwise indicated, a common proxy representing common stock
will be voted FOR the election of Messrs. Akin, Davenport, Potts, Vaden and Von
der Porten to the Board of Directors. Each common stock director nominee has
agreed to serve if elected. In the event any common stock director nominee shall
unexpectedly be unable to serve, each common proxy will be voted for such other
person as the Board of Directors may designate. Selected biographical
information regarding each common stock director nominee is set forth below.

Preferred Stock Directors. Pursuant to Section 9(a) of each of Articles
IIIA, IIIB and IIIC of the Company's Articles of Incorporation, as amended, the
holders of the Company's preferred stock are entitled to elect two directors to
the Board of Directors of the Company, each to serve until the earlier of (a)
the date upon which (i) the consolidated shareholders' equity of the Company at
the end of any subsequent calendar quarter equals or exceeds 150% of the
aggregate liquidation preference of the then outstanding preferred stock and
(ii) quarterly dividends on the Series A, Series B and Series C preferred stock
are current, or (b) the next annual meeting of the stockholders of the Company
and until their successors are elected and duly qualified. Mr. Leon A. Felman
and Mr. Barry Igdaloff have been nominated for election by holders of preferred
stock to the Board of Directors at the Annual Meeting. Each preferred stock
director nominee has agreed to serve if elected. Selected biographical
information regarding each preferred stock director nominee is set forth below.

Vote Required
-------------

Common Stock Directors. The five directors to be elected by the holders
of the Company's common stock will be elected by a favorable vote of a plurality
of the shares of common stock represented and entitled to vote with respect to
each common stock director, in person or by proxy, at the Annual Meeting.
Accordingly, abstentions or broker non-votes as to the election of the common
stock directors will not affect the election of candidates receiving the
plurality of votes. Unless instructed to the contrary, the shares represented by
each common proxy will be voted FOR the election of each of the five common
stock director nominees named below. Although it is anticipated that each common
stock director nominee will be able to serve as a director, should any nominee
become unavailable to serve, the shares represented by each common proxy will be
voted for another person or persons designated by the Company's Board of
Directors. In no event will a common proxy be voted for more than five common
stock directors.

Preferred Stock Directors. The two directors to be elected by the holders
of the Company's preferred stock will be elected by a favorable vote of a
plurality of the shares of preferred stock represented and entitled to vote with
respect to each preferred stock director, in person or by proxy, at the Annual
Meeting. Accordingly, abstentions or broker non-votes as to the election of the
preferred stock directors will not affect the election of candidates receiving
the plurality of votes. If a preferred proxy is not completed in accordance with
its instructions or no choices are specified on the preferred proxy, the shares
of preferred stock represented by such preferred proxy will not be voted.
Although it is anticipated that each preferred stock director nominee will be
able to serve as a director, should any nominee become unavailable to serve, the
shares represented by each preferred proxy will not be voted for another person
or persons. In no event will a preferred proxy be voted for more than two
directors.

Common Stock Director Nominees
------------------------------

Thomas B. Akin, 50, has served as the managing general partner of Talkot
Capital, LLC located in Sausalito, California since 1995. Talkot Capital is the
general partner for various limited partnerships investing in both private and
public companies. From 1991 to 1994, Mr. Akin was the managing director of the
Western United States for Merrill Lynch Institutional Services. Mr. Akin had
been the regional director of the San Francisco and Los Angeles regions for
Merrill Lynch Institutional Services from 1981 to 1991. Prior to Merrill Lynch,
Mr. Akin was an employee of Salomon Brothers from 1978 to 1981. Mr. Akin is
currently on the board of Acacia Research Inc. and Combimatrix, a private
biotech company. Mr. Akin also serves on the compensation committee of Acacia
Research and, the audit and compensation committees of Combimatrix.

J. Sidney Davenport, 61, has been a director of the Company since its
organization in December 1987. Mr. Davenport retired from The Ryland Group,
Inc., a publicly-owned corporation engaged in residential housing construction
and mortgage-related financial services, where he was a Vice President from
March 1981 to January 1998. Mr. Davenport was Executive Vice President of Ryland
Mortgage Company from April 1992 to January 1998. Mr. Davenport served as a
director of Mentor Income Fund, Inc., a publicly traded closed-end mutual fund,
from June 1992 to August 1993.

Thomas H. Potts, 53, has been a director of the Company since its
organization in December 1987. From 1987 to June 2002, Mr. Potts served as
President of the Company. Prior to that, Mr. Potts served in various positions
on behalf of The Ryland Group, Inc. and its affiliates. Mr. Potts also served as
President and director of Mentor Income Fund, Inc. from its inception in
December 1988 until June 1992. Mr. Potts is currently the Executive Vice
President, People, Process and Strategy for IndyMac Bancorp, Inc. located in
Pasadena, California.

Donald B. Vaden, 68, has been a director of the Company since January
1988. In March 1995, Mr. Vaden resumed practicing law specializing in mediation
and arbitration, and is certified for general and family mediation by the
Supreme Court of Virginia. He serves as a director of the Virginia Mediation
Network, Inc. He is the retired past Chairman of Residential Home Funding
Corporation where he served from December 1992 until February 1995.

Eric P. Von der Porten, 45, has been a director of the Company since May
2002, and Chairman since March 2003. Since 1997, Mr. Von der Porten has served
as the managing member of Leeward Investments, LLC, the general partner of
Leeward Capital, L.P. He is also a director of Meredith Enterprises, Inc.
(formerly known as, West Coast Realty Investors, Inc.), a real estate investment
trust, and a member of the audit committee. Mr. Von der Porten earned an A.B.
from the University of Chicago and an M.B.A. from the Stanford Graduate School
of Business.

Preferred Stock Director Nominees
---------------------------------

Leon A. Felman, 68, has been a director of the Company since November 2000.
Mr. Felman has been a director of Allegiant Bancorp, Inc., a St. Louis, Missouri
based bank holding company, since 1992. Mr. Felman also serves on the audit
committee and chairs both the corporate governance committee and the ethics
committee of Allegiant Bancorp. From 1968 to 1999, Mr. Felman was the president
and chief executive officer of Sage Systems, Inc., which operated twenty-eight
Arby's restaurants in the St. Louis, Missouri metropolitan area. Mr. Felman has
been a private investor in financial institutions since 1999. Mr. Felman
graduated from Carnegie Institute of Technology with a B.S. in Industrial
Administration.

Barry Igdaloff, 48, has been a director of the Company since November 2000.
Mr. Igdaloff has been a registered investment advisor and the sole proprietor of
Rose Capital in Columbus, Ohio, since 1995. Mr. Igdaloff graduated from Indiana
University in 1976 with a B.S.B. in Accounting and in 1978 graduated from Ohio
State University with a J.D. in law. Mr. Igdaloff is a non-practicing certified
public accountant and a non-practicing attorney.

Information Concerning the Board of Directors
---------------------------------------------

Barry S. Shein will resign as a member of the Board of Directors of the
Company, effective May 30, 2003. Mr. Shein is resigning from the Board as a
result of a need to focus his full attention on his business, The Commodore
Corporation, of which he is the President. The number of directors will remain
at five and Thomas B. Akin has been nominated to the slate of directors for
election by the common shareholders of the Company.

In March 2003, Mr. Potts resigned as Chairman of the Board. Mr. Von der
Porten was elected to serve as Chairman of the Board until the Annual Meeting of
Stockholders in May 2003, after which the Board of Directors anticipates
electing a new Chairman or confirming Mr. Von der Porten to continue as
Chairman.

The Audit Committee currently consists of three independent directors: Mr.
Felman, Mr. Shein and Mr. Vaden. Mr. Davenport during part of 2002 was a member
of the Audit Committee. The Audit Committee, among other things, reviews and
approves the scope of the annual audit undertaken by the Company's independent
certified public accountants and meets with them on a regular basis to review
the progress and results of their work as well as any recommendations they may
make. The Audit Committee held three regular meetings in 2002. Mr. Vaden, as
current Chairman of the Audit Committee, and Mr. Davenport, as prior Chairman of
the Audit Committee held a total of three meetings with the Company's
independent certified public accountants to review quarterly results.

The Compensation Committee consists of four independent directors: Mr.
Davenport, Mr. Igdaloff, Mr. Vaden and Mr. Von der Porten. The Compensation
Committee met two times in 2002.

The Nominating Committee consists of four independent directors: Mr.
Davenport, Mr. Shein (Chairman), Mr. Vaden and Mr. Von der Porten. The
Nominating Committee did not meet during 2002, but did meet in early 2003 in
connection with the nomination of the directors to be elected by the common
stockholders for the 2003 Annual Meeting.

The Board of Directors held four regular meetings and eight special
meetings in 2002. During this period, each of the directors attended at least
75% of the meetings of the Board of Directors and the committees on which they
served.

The independent directors receive an annual fee of $25,000 per year, plus
$500 for each meeting of the Board of Directors, or a committee thereof, they
attend. In addition, these directors are reimbursed for expenses related to
their attendance at Board of Directors and committee meetings.

Mr. Akin is the managing general partner of Talkot Capital, LLC. During
1999, Talkot Capital and several other investors invested in Infotec Commercial
Systems, Inc. ("Infotec"), a privately held company that provided training in
computer technology to businesses throughout the United States. In 2001, Mr.
Akin served as Chairman of the Board of Directors of Infotec, which filed for
relief under Chapter VII of the United States Bankruptcy Code resulting in the
liquidation of the company's assets. The investors of Infotec, including Talkot
Capital, did not receive any return on capital.

OWNERSHIP OF STOCK
------------------

The table below sets forth, as of March 31, 2003, the number of shares of
common and preferred stock beneficially owned by owners of more than 5% of the
Company's stock outstanding for each class, each director of the Company, and
each executive officer named in the Summary Compensation Table under "Management
of the Company", and the number of shares beneficially owned by all of the
Company's directors and executive officers as a group. To the Company's
knowledge, no other person beneficially owns more than 5% of the outstanding
shares of each class of stock. Unless otherwise indicated, all persons named as
beneficial owners of common and preferred stock have sole voting power and sole
investment power with respect to the shares beneficially owned.

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Series A Series B Series C Percent of Percent of
Name of Beneficial Owner Common Preferred Preferred Preferred Common Stock Preferred Stock
------------------------ ------ --------- --------- --------- ------------ ---------------

Stephen J. Benedetti 14,029 - - - * -
J. Sidney Davenport 25,356 - - - * -
Thomas H. Potts 326,495 (1) - - - 3.00% -
Donald B. Vaden 9,483 (2) - - - * -
Barry S. Shein - - - - * -
Eric P. Von der Porten(3) 140,200 - 1,598 3,226 1.29% *
Leon A. Felman 11,570 (4) - 20,847 (5) * 1.12%
Barry Igdaloff 22,280 (6) 49,546 (7) 52,820 (8) 52,500 (9) * 8.30%
Thomas B. Akin 961,300 (10) 79,707 (11) 136,234 (12) 78,893 (13) 8.84% 15.79%

Rockwood Partners L.P., Rockwood 788,500 53,100 50,600 26,100 7.25% 6.95%
Asset Management, Inc. and Demeter
Asset Management, Inc., as a
group(14)

All directors and executive 1,510,713 129,251 190,650 155,466 13.89% 25.47%
officers as a group
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*Less than 1% of the outstanding shares of stock.
(1) Includes 9,077 shares of common stock owned of record by such person's
children and spouse. (2) Includes 583 shares of common stock owned of
record by such person's spouse.
(3) Includes 140,200 shares of common stock, 1,598 shares of Series B
Preferred Stock and 3,226 shares of Series C Preferred Stock held by
Leeward Capital, L.P. Mr. Von der Porten is the managing member of
Leeward Investments, LLC, which is the general partner of Leeward
Capital, L.P.
(4) Includes 87 shares of common stock owned of record by such person's
spouse; 3,600 shares of common stock owned of record by The Leon A.
Felman Keogh Profit Sharing Plan of which Mr. Felman is the Trustee;
3,150 shares of common stock owned of record by Homebaker Brand Profit
Sharing Plan of which Mr. Felman is the Trustee; and 1,340 shares of
common stock held of record by HLF Corporation of which Mr. Felman is
an officer.
(5) Includes 11,670 shares of Series C Preferred Stock owned of record by
Homebaker Brand Profit Sharing Plan of which Mr. Felman is the
Trustee; 3,687 shares of Series C Preferred Stock owned of record by
The Leon A. Felman Keogh Profit Sharing Plan of which Mr. Felman is
the Trustee; 350 shares of Series C Preferred Stock owned of record by
The Felman Family Trust of which Mr. Felman is the Trustee; and 980
shares of Series C Preferred Stock owned of record by HLF Corporation
of which Mr. Felman is an officer.
(6) Includes 22,280 shares of common stock owned by clients of Rose
Capital of which Mr. Igdaloff is the sole proprietor. Shares are held
with shared power to vote and dispose thereof.
(7) Includes 29,146 shares of Series A Preferred Stock owned by clients of
Rose Capital. Shares are held with shared power to vote and dispose
thereof.
(8) Includes 26,520 shares of Series B Preferred Stock owned by clients of
Rose Capital. Shares are held with shared power to vote and dispose
thereof.
(9) Includes 10,100 shares of Series C Preferred Stock owned by clients of
Rose Capital. Shares are held with shared power to vote and dispose
thereof.
(10) Includes 440,000 shares of common stock held by Talkot Crossover Fund,
L.P. Mr. Akin is the managing general partner of Talkot Capital
which is the general partner of Talkot Crossover Fund, L.P. Shares
are held with shared power to vote and dispose thereof.
(11) Includes 60,550 shares of Series A Preferred Stock held by Talkot
Crossover Fund, L.P. Mr. Akin is the managing general partner of
Talkot Capital which is the general partner of Talkot Crossover Fund,
L.P. Shares are held with shared power to vote and dispose thereof.
(12) Includes 81,537 shares of Series B Preferred Stock held by Talkot
Crossover Fund, L.P. Mr. Akin is the managing general partner of
Talkot Capital which is the general partner of Talkot Crossover Fund,
L.P. Shares are held with shared power to vote and dispose thereof.
(13) Includes 17,909 shares of Series C Preferred Stock held by Talkot
Crossover Fund, L.P. Mr. Akin is the managing general partner of
Talkot Capital which is the general partner of Talkot Crossover Fund,
L.P. Shares are held with shared power to vote and dispose thereof.
(14) Address: 35 Mason Street, Greenwich, CT 06830. Shares are held with
shared power to vote and dispose thereof.
--------------------------------------------------------------------------------

MANAGEMENT OF THE COMPANY
-------------------------

The executive officer of the Company and his position is as follows:

Name Age Position(s) Held
---- --- ----------------
Stephen J. Benedetti 40 Executive Vice President,
Chief Financial Officer and Secretary

The executive officer serves at the discretion of the Company's Board of
Directors. Biographical information regarding Mr. Benedetti is set forth below:

Stephen J. Benedetti has served as Executive Vice President, Chief
Financial Officer and Secretary since September 2001. From May 2000 to September
2001, Mr. Benedetti had been the Acting Chief Financial Officer and Acting
Secretary. From October 1997 until August 2001, Mr. Benedetti served as Vice
President and Treasurer of the Company; and from September 1994 until December
1998, he served as Vice President and Controller. From March 1992 until
September 1994, he served as Director of Accounting and Financial Reporting for
National Housing Partnerships, a national multifamily housing syndicator and
property management concern. Mr. Benedetti also served as audit manager for
Deloitte & Touche from 1985 to 1992, where he provided audit and consulting
services to various clients primarily in the financial services and real estate
development industries. Mr. Benedetti graduated from Virginia Tech in 1985 with
a bachelor's degree in accounting and became a Certified Public Accountant in
1986.

Executive Compensation
----------------------

The Summary Compensation Table below includes individual compensation
information on the President and the other most highly compensated executive
officer whose salary and bonus exceeded $100,000 ("Named Officers") during 2002,
2001 and 2000.

Summary Compensation Table
--------------------------

Long-Term
Compensation Awards
Annual Compensation (1) ------------------------- All Other
------------------------------ SARs Compensation
Name and Principal Position Year Salary ($) Bonus ($) (#) (2) ($) (3)
---------------------------------- -------- ------------- -------------- ------------------------- ---------------------

Thomas H. Potts (4) 2002 170,125 200,000 - 9,690
President and Director 2001 315,000 - - 32,315
2000 315,000 - 94,500 32,361

Stephen J. Benedetti 2002 180,000 120,000 - 36,365
Executive Vice President, 2001 180,000 60,030 30,000 46,721
Chief Financial Officer, 2000 150,000 150,000 - 5,348
Secretary
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(1) Does not include perquisites and other personal benefits, securities or
property where the aggregate amount of such compensation to an executive
officer is the lesser of either $50,000 or 10% of annual salary and bonus.
(2) Stock Appreciation Rights ("SARs"). Amounts have been adjusted for the
1-for-4 stock split, effective August 1999.
(3) Amount for 2002 for Mr. Potts consists of matching and profit sharing con-
tributions to the Company's 401(k) Plan in the amount of $9,450. Amount
for 2002 for Mr. Benedetti consists of matching and profit sharing
contributions to the Company's 401(k) Plan and 401(k) Overflow Plan in the
amount of $36,020. Amounts for 2002 for Mr. Potts and Mr. Benedetti also
consist of Group Term Life Insurance in the amount of $240 and $345,
respectively.
(4) Thomas H. Potts had served as President of the Company until his
resignation, effective June 30, 2002.

Aggregated SAR Exercises In Last Fiscal Year
And Year-End SAR Value Table
--------------------------------------------

The table below presents the total number of SARs exercised by the
Named Officers in 2002 and held by the Named Officers at December 31, 2002
(distinguishing between SARs that are exercisable as of December 31, 2002 and
those that had not become exercisable as of that date) and includes the
aggregate amount by which the market value of the SARs (including related
Dividend Equivalent Rights ("DERs")) exceeds the exercise price at December 31,
2002.

Value of Unexercised
SARs Exercised Number of Unexercised In-the-money
in 2002 SARs at 12-31-02 SARs at 12-31-02
----------------------------- ---------------------------------- ----------------------------------------
Number Value
of SARs Realized Exercisable Unexercisable Exercisable Unexercisable
-------------- -------------- ------------- ---------------- ------------- -------------------

Thomas H. Potts 0 $0 0 0 0 0

Stephen J. Benedetti 0 0 30,000 0 $85,200 0

------------------------------------------------------------------------------------------------------------------------------------

SARs Granted During the Year
----------------------------

No SARs were granted during 2002.

Employment Agreements
---------------------

Mr. Potts' entered into an employment agreement with the Company,
effective October 1, 2001. Under the terms of the agreement, Mr. Potts agreed to
continue as an employee through June 30, 2002 at his prior base salary of
$315,000 per annum, and was entitled to receive a minimum bonus of $200,000. Mr.
Potts resigned as an officer of the Company, effective June 30, 2002. In
addition, Mr. Potts received $3,300 for consulting fees subsequent to his
resignation for services rendered to the Company as provided for under the terms
of the employment agreement.

Mr. Benedetti entered into an employment agreement with the Company,
effective March 18, 2002. Mr. Benedetti's prior employment agreement dated
September 4, 2001, was made a part of the new agreement. Under such agreement,
which expires June 30, 2004, Mr. Benedetti receives his current base salary of
$180,000 per annum, adjusted each January 1st for inflation. Mr. Benedetti
received incentive compensation of $120,000 on June 30, 2002 and, thereafter is
entitled to receive up to 66.7% of his base salary for the period ending each
June 30th as approved by the Compensation Committee. The employment agreement
will terminate in the event of Mr. Benedetti's death or total disability, may be
terminated by the Company with "cause" (as defined therein) or for any reason
other than cause, and may be terminated by the resignation of Mr. Benedetti. If
the employment agreement is terminated by the Company for any reason other than
cause, total disability or death, then the Company shall pay to Mr. Benedetti
his salary for a period equal to the lesser of one year, or through the
expiration date of the employment agreement. The Company also agreed to give Mr.
Benedetti six months notice if his employment agreement would not be renewed. If
the Company fails to give such notice by December 31, 2003, his employment
period will be extended for six months from the date such notice is given.

Audit Committee Report
----------------------

The following Audit Committee Report shall not be deemed to be
soliciting material or to be incorporated by reference by any general statement
incorporating by reference this proxy statement into any filing under the
Securities Exchange Act of 1933 or the Securities Exchange Act of 1934, as
amended, except to the extent the Company specifically incorporates this Report
therein, and shall not otherwise be deemed filed under such Acts.

The Audit Committee makes recommendations concerning the engagement of
independent public accountants, reviews with the independent public accountants
the plans and results of any audits, reviews other professional services
provided by the independent public accountants, reviews the independence of the
independent public accountants, considers the range of audit and non-audit fees
and reviews the adequacy of internal accounting controls. The Audit Committee is
composed of three directors, each of whom is independent as defined by the
listing standards of the New York Stock Exchange. The Board has adopted a new
written charter for the Audit Committee which is included as an appendix to this
proxy statement.

The Audit Committee has reviewed and discussed with management and the
independent accountants the Company's audited financial statements for fiscal
year 2002. In addition, the Committee has communicated with the independent
accountants the matters required to be communicated by Statement of Auditing
Standards No. 61, "Communication with Audit Committees, as amended by Statement
of Auditing Standards No. 90."

The Audit Committee has received from the independent accountants
written disclosures and a letter concerning the independent accountants'
independence from the Company, as required by Independence Standards Board
Standard No. 61, "Independence Discussions with Audit Committees." These
disclosures have been reviewed by the Committee, and discussed with the
independent accountants as necessary.

Based on these reviews and discussions, the Committee recommended to
the Board that the audited financial statements be included in the Company's
Annual Report on Form 10-K for fiscal year 2002 for filing with the Securities
and Exchange Commission and recommended that Deloitte & Touche, LLP be retained
by the Company to act as the independent certified public accountants for the
year ending December 31, 2003.

Audit Committee

Donald B. Vaden, Chairman
Leon A. Felman
Barry S. Shein

Compensation Committee Report
-----------------------------

The Compensation Committee of the Company's Board of Directors, which
is comprised exclusively of directors who are not employees of the Company,
administers the Company's executive compensation program. All issues pertaining
to executive compensation are reviewed and approved by the Compensation
Committee.

The Compensation Committee historically designed the executive
compensation structure to reward long-term value created for stockholders and to
reflect the business strategies and long-range plans of the Company. The guiding
principles in regard to compensation were (i) to attract and retain key high
caliber executives, (ii) to provide levels of compensation competitive with
those offered by the Company's competitors, (iii) to motivate executives to
enhance long-term stockholder value by linking stock performance (on a total
return basis) with long-term incentive compensation, and (iv) to design a
long-term compensation program that leads to management retention. Executive
officer compensation was based on three principal components: base salary,
annual bonus, and SARs (and related DERs) granted under the Company's Incentive
Plan.

During 2001 the Compensation Committee requested that Mr. Benedetti
continue his employment with the Company through June 30, 2002 at the same base
salary as in the prior period, and agreed to pay Mr. Benedetti a minimum bonus
of $120,000 should he remain an employee through such date, subject to the
Company's right to terminate Mr. Benedetti for "cause," all as set forth in an
agreement dated September 4, 2001. In March 2002, the Compensation Committee
requested Mr. Benedetti to enter into an employment agreement with the Company
through June 30, 2004, at his current base salary of $180,000 per annum,
adjusted each January 1st for inflation. Under such agreement, Mr. Benedetti was
also entitled to and received incentive compensation of $120,000 on June 30,
2002, and thereafter is entitled to receive up to 66.7% of his base salary for
the period ending each June 30th as approved by the Compensation Committee. Mr.
Benedetti's prior employment agreement dated September 4, 2001 was made a part
of the new agreement.

The Compensation Committee has historically awarded SARs and related
DERs under the Company's Incentive Plan to its executive officers. During the
calendar year 2002, no SARS were awarded by the Compensation Committee.

Compensation Committee

Donald B. Vaden, Chairman
J. Sidney Davenport
Barry Igdaloff
Eric P. Von der Porten

Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------

The Compensation Committee consists of Mr. Davenport, Mr. Vaden, Mr.
Igdaloff and Mr. Von der Porten. During 2002, no interlocking relationship
existed between any member of the Compensation Committee and the Company.

Certain Relationships and Related Transactions
----------------------------------------------

The Company and Dynex Commercial, Inc. ("DCI") entered into a
Litigation Cost Sharing Agreement in 2001 whereby the parties set forth how the
costs of defending against certain litigation where both the Company and DCI
have been named as defendants would be shared. The Company agreed to fund all
costs of such litigation, including DCI's portion. The costs funded by the
Company are considered loans and bear simple interest at the rate of Prime plus
8% per annum. Until December 2000, DCI was a subsidiary of Dynex Holding, Inc.
("DHI"), an affiliate of the Company which was merged into the Company in
December 2000. All litigation against DCI relates to the activities of DCI while
it was a subsidiary of DHI. As of December 31, 2002, the Company has funded
$2,393,000 of litigation costs, including settlement amounts. DCI has no assets,
and has asserted counterclaims in the litigation. The parties agreed that any
proceeds from any counterclaims would be distributed 100% to the Company and 0%
to DCI. ICD Holding, Inc. is the sole shareholder of DCI. Mr. Potts and Mr.
Benedetti are the shareholders of ICD Holding, Inc.

Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------

Based solely upon a review of all Forms 3, 4 and 5 furnished to the
Company with respect to 2002 and representations made to the Company by certain
reporting persons, the Company knows of no person that failed to file on a
timely basis reports required by Section 16(a) of the Exchange Act during 2002.

Total Return Comparison
-----------------------

The following graph demonstrates a five year comparison of cumulative
total returns for the common stock of Dynex Capital, Inc. ("DX"), the Standard &
Poor's 500 Stock Index ("S&P 500"), and the SNL All MBS REIT Index (the "Peer
Group"). The table below assumes $100 was invested at the close of trading on
December 31, 1997 in DX common stock, S&P 500, and Peer Group.

Comparative Five-Year Total Returns *
DX, S&P 500, and Peer Group
(Performance Results through December 31, 2002)
-----------------------------------------------

GRAPH OMITTED

1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
DX 100.00 37.96 13.21 2.05 4.31 9.93
S&P 500 100.00 128.55 155.60 141.42 124.63 96.95
Peer Group 100.00 67.84 46.07 55.37 97.08 125.88

* Cumulative total return assumes reinvestment of dividends. The source of this
information is SNL Financial L.C. The factual material is obtained from sources
believed to be reliable, but SNL Financial is not responsible for any errors or
omissions contained herein.

APPOINTMENT OF AUDITORS
-----------------------

The Board of Directors has appointed Deloitte & Touche LLP
("Deloitte"), independent certified public accountants, to examine the financial
statements of the Company for the year ended December 31, 2003. Holders of the
common stock of the Company will be asked to approve this appointment at the
Annual Meeting. Deloitte has been the Company's independent accountants since
July 1998. A representative of Deloitte is expected to be present at the Annual
Meeting and will be provided with an opportunity to make a statement and to
respond to appropriate questions from stockholders.

The Board recommends a vote FOR the proposal to approve Deloitte & Touche
LLP as the Company's auditors for the year ended December 31, 2003.

AUDIT FEES
----------

The aggregate fees billed by Deloitte for professional services ren-
dered for the audit of the Company's annual financial statements for the
fiscal year ended December 31, 2002 and for the reviews of the financial
statements included in the Company's Quarterly Reports on Form 10-Q for that
fiscal year were $274,154. Also included in the aggregate fees were the
professional services rendered in connection with the amendment of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2001 and,
Quarterly Report on Form 10-Q for the period ended March 31, 2002, for the
restatement of certain of its collateral for collateralized bonds, which was
effective in the quarter.

FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
------------------------------------------------------------

There were no professional services rendered by Deloitte for infor-
mation technology services relating to financial information systems design and
implementation during 2002.

ALL OTHER FEES
--------------

The aggregate fees billed by Deloitte for services rendered to the Company,
other than the services described above for the fiscal year ended December 31,
2002, were approximately $58,435.

VOTES REQUIRED
--------------

The election of five directors to be elected by the holders of the shares
of the Company's common stock requires a plurality of votes by the holders of
the shares of the Company's common stock cast at the meeting. The election of
two directors to be elected by the holders of the shares of the Company's
preferred stock requires a plurality of votes by the holders of the shares of
the Company's preferred stock cast at the meeting. To appoint Deloitte as
independent auditors for the Company fiscal year 2003 will require a majority of
votes by the holders of the shares of the Company's common stock cast at the
meeting.

The following principles of Virginia law apply to the voting of shares of
capital stock at the meeting. The presence in person or by proxy of stock-
holders entitled to vote a majority of the outstanding shares of common stock
will constitute a quorum for all matters upon which holders of the common stock
are entitled to vote. The presence in person or by proxy of stockholders
entitled to vote a majority of the outstanding shares of preferred stock will
constitute a quorum for the matter upon which holders of the preferred stock are
entitled to vote. Shares represented by proxy or in person at the meeting,
including shares represented by proxies that reflect abstentions, will be
counted as present in the determination of a quorum. An abstention as to any
particular matter, however, does not constitute a vote "for" or "against" such
matter. "Broker non-votes" (i.e., where a broker or nominee submits a proxy
specifically indicating the lack of discretionary authority to vote on a matter)
will be treated in the same manner as abstentions.

OTHER MATTERS
-------------

The management and the Board of Directors of the Company know of no other
matters to come before the Annual Meeting other than those stated in the notice
of the meeting. However, if any other matters are properly presented to the
stockholders for action, it is the intention of the proxy holders named in the
enclosed proxy to vote in their discretion on all matters on which the shares
represented by such proxy are entitled to vote.

STOCKHOLDER PROPOSALS
---------------------

Any proposal which a stockholder may desire to present to the 2004 Annual
Meeting of Stockholders and to have included in the Company's Proxy State-
ment must be received in writing by the Secretary of the Company prior to
December 12, 2003. Any proposals of Stockholders to be presented at the 2004
Annual Meeting which are delivered to the Company later than February 25, 2004
will be voted by the proxy holders designated for the 2004 Annual Meeting in
their discretion.

By the order of the Board of Directors

Stephen J. Benedetti
Executive Vice President and
Chief Financial Officer

April 21, 2003

APPENDIX A

DYNEX CAPITAL, INC.
Audit Committee Charter

I. STATEMENT OF POLICY

This Charter specifies the scope of the responsibilities of the Audit
Committee (the "Committee") of the Board of Directors (the "Board") of Dynex
Capital, Inc. (the "Company"), and how the Committee carries out those
responsibilities, including the structure, processes, and membership
requirements. The primary function of the Committee is to assist the Board of
Directors in fulfilling its financial oversight responsibilities by reviewing
and reporting to the Board upon (i) the financial reports and other financial
information provided by the Company to any governmental body or to the public,
(ii) the Company's systems of internal and external controls regarding finance,
accounting, legal compliance and ethics that management and the Board have
established and (iii) the Company's auditing, accounting and financial reporting
processes in general. Consistent with this function, the Committee should
encourage continuous improvement of, and should foster adherence to, the
Company's financial policies, procedures and practices at all levels. The
Committee's primary duties and responsibilities are to:

A. Serve as an independent and objective party to monitor the Company's
financial reporting process and internal control systems.

B. Review and appraise the audit efforts and independence of the
Company's auditors.

C. Provide an open avenue of communication among the independent
auditors, financial and senior management, and the Board.

The Committee will primarily fulfill these responsibilities, and others
as may be prescribed by the Board from time to time, by carrying out the
activities enumerated in Section IV of this Charter.

II. ORGANIZATION AND MEMBERSHIP REQUIREMENTS

The Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be independent directors, and free
from any relationship that, in the opinion of the Board, would interfere with
the exercise of his or her independent judgment as a member of the Committee. A
member of the Committee shall be considered independent if, among other things,
such Director:

A. is not an employee of the Company or its affiliates and has not been
employed by the Company or its affiliates within the past three years;

B. is not a member of the immediate family of an executive officer of
the Company or its affiliates who currently serves in that role or did so during
the past three years;

C. has not accepted more than $60,000 in compensation from the Company
during the previous fiscal year (excluding compensation and the related benefits
for Board service, retirement plan benefits or non-discretionary compensation);

D. has not been a partner, controlling shareholder or an executive
officer of any for-profit business to which the Company made, or from which it
received, payments (other than those which arise solely from investments in the
Company's securities) that exceed 5% of the Company's consolidated gross
revenues for that year, or $200,000, whichever is more, in any of the past three
years; and

E. is not an executive of another entity on whose Compensation
Committee any of the Company's current executives serves.

All members of the Committee must be able to read and understand
fundamental financial statements, including a balance sheet, income statement,
and cash flow statement or will be able to do so within a reasonable time after
their appointment. In addition, at least one member must have past employment
experience in finance or accounting, professional certification in accounting,
or other comparable experience or background resulting in the individual's
financial sophistication, including being or having been a chief executive,
chief financial, or other senior officer with financial oversight
responsibilities.

The members of the Committee shall be elected by the Board and shall
serve until their successors shall be duly elected and qualified. Unless a
chairman is elected by the full Board, the members of the Committee may
designate a chairman by majority vote of the full Committee membership.

III. MEETINGS

The Committee shall meet at least annually with management and the
independent auditors in separate executive sessions to discuss any matters that
the Committee or each of these groups believe should be discussed privately. In
addition, the Committee should meet with the independent auditors and management
on a quarterly basis to review the Company's financial statements consistent
with Section IV.A.5. below.

IV. SPECIFIC DUTIES

To fulfill its responsibilities and duties the Committee shall:

A. Documents/Reports to Review

1. Review and reassess the Charter's adequacy periodically,
and at least annually, as conditions dictate.

2. Review the Company's annual audited financial statements,
including a discussion of the matters required to be discussed by Statement of
Auditing Standards No. 61, as amended, and any reports or other financial
information submitted to any governmental body, or the public, including any
certification, report, opinion, or review rendered by the independent auditors.

3. Review the regular Management Letter to management prepared
by the independent auditors and management's response.

4. Review related party transactions for potential conflicts
of interests.

5. Review the interim financial statements with financial
management and the independent auditors prior to the filing of the Company's
Form 10-Ks and Form 10-Qs, including a discussion of the matters required to be
discussed by Statement of Auditing Standards No. 61, as amended. These meetings
should include a discussion of the independent auditors, judgment of the quality
of the Company's accounting and any uncorrected misstatements as a result of the
auditors' quarterly review.

6. Based on the review and discussions referred to in Sections
IV.A.2, IV.A.5 and IV.B.2, determine whether to recommend to the Board that the
Company's audited financial statements be included in the Company's Annual
Report on Form 10-K for the last fiscal year for filing with the Securities and
Exchange Commission.

7. Maintain written minutes of its meetings, which minutes
will be filed with the minutes of the meetings of the Board. The Committee will
also record its summaries of recommendations to the Board in written form that
will be incorporated as part of the minutes of the Board meeting at which those
recommendations are presented.

B. Independent Auditors

1. Recommend to the Board the selection of the independent
auditors, considering independence and effectiveness. The independent auditors
will ultimately be accountable to the Committee and the Board.

2. Obtain from the independent auditors, on a periodic basis,
a formal written statement delineating all relationships between the auditor and
the Company, and discuss with the auditor any disclosed relationships or
services that may impact auditor objectivity and independence (consistent with
Independence Standards Board Standard No. 1).

3. Take, or recommend that the Board take, appropriate action to over-
see the independence of the outside auditor.

4. Review the performance of the independent auditors and
approve any proposed discharge of the independent auditors when circumstances
warrant.

5. Periodically consult with the independent auditors out of
the presence of management about internal controls and the fullness and accuracy
of the Company's financial statements.

C. Financial Reporting Processes

1. In consultation with the independent auditors, review the
integrity of the Company's financial reporting processes, both internal and
external.

2. Consider the independent auditors' judgments about the
quality and appropriateness of the Company's accounting principles as applied in
its financial reporting.

3. Consider and approve, if appropriate, changes to the
Company's auditing and accounting principles and practices as suggested by the
independent auditors or management.

D. Process Improvement

1. Review with management and the independent auditors any
significant judgments made in management's preparation of the financial
statements and the view of each as to appropriateness of such judgments.

2. Review with management and the independent auditors any
significant difficulties encountered during the course of the audit, including
any restrictions on the scope of work or access to required information.

3. Review any significant disagreement among management and
the independent auditors in connection with the preparation of the financial
statements.

4. Review with the independent auditors and management the
extent to which changes or improvements in financial or accounting practices, as
approved by the Committee, have been implemented.

5. Provide oversight and review the Company's asset management
policies, including an annual review of the Company's investment policies and
performance for cash and short-term investments.

E. Ethical and Legal Compliance

1. Review whether management has set an appropriate corporate
"tone" for quality financial reporting, sound business practices and ethical
behavior.

2. Review whether management has the proper review system in
place to ensure that the Company's financial statements, reports and other
financial information disseminated to governmental organizations and the public
satisfy legal requirements.

3. Review management's monitoring of compliance with the
Foreign Corrupt Practices Act.

4. Review, with the Company's counsel, legal compliance
matters including corporate securities trading policies.

5. Review with the Company's counsel any legal matter that
could have a significant impact on the Company's financial statements.

6. Perform any other activities consistent with this Charter,
the Company's Bylaws and governing law, as the Committee or the Board deems
necessary or appropriate.

7. If necessary, initiate special investigations, and if
appropriate, hire special counsel or experts to assist the Committee.

COMMON SHAREHOLDER PROXY

DYNEX CAPITAL, INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Thomas H. Potts and Stephen J. Benedetti, and
each of them as proxies of the undersigned, with full power of substitution, and
authorizes each of them to represent the undersigned and to vote, as designated
on this card, all the shares of common stock of Dynex Capital, Inc. which the
undersigned is entitled to vote at the Annual Meeting of Stockholders to be held
at The Place At Innsbrook, 4036 Cox Road, Glen Allen, Virginia, on Friday, May
30, 2003 at 9:00 a.m. Eastern Time, or any adjournment or postponement thereof,
upon the matters set forth in the Notice of Annual Meeting, and the related
proxy statement, a copy of which has been received by the undersigned, and in
their discretion upon any adjournments or postponements of the meeting.

The Board of Directors recommends a vote FOR Proposals 1 and 2.

1. Election of Directors

Thomas B. Akin |_| FOR |_| AGAINST |_| ABSTAIN
J. Sidney Davenport |_| FOR |_| AGAINST |_| ABSTAIN
Thomas H. Potts |_| FOR |_| AGAINST |_| ABSTAIN
Donald B. Vaden |_| FOR |_| AGAINST |_| ABSTAIN
Eric P. Von der Porten |_| FOR |_| AGAINST |_| ABSTAIN

2. Proposal to ratify the appointment of Deloitte & Touche LLP, independent
certified public accountants, as auditors of the Company.

|_| FOR |_| AGAINST |_| ABSTAIN

If no direction is made, this proxy will be voted FOR each of the nominees
listed under Proposal 1 and FOR Proposal 2.

In their discretion, the proxies are authorized to vote upon other business as
may properly come before the meeting.

This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder.

Please sign exactly as the name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee, guardian or agent, please give full title as such. If a corporation,
please sign in full corporate name by president or other authorized officer. If
a partnership, please sign in partnership name by authorized person.

Date: _________________________________, 2003

_____________________________________________
Signature

_____________________________________________
Signature, if held jointly

PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.

PREFERRED SHAREHOLDER PROXY

DYNEX CAPITAL, INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Thomas H. Potts and Stephen J. Benedetti and
each of them as proxies of the undersigned (the "Proxies"), with full power of
substitution, and authorizes each of them to represent and vote all shares of
Preferred Stock of Dynex Capital, Inc. held by the undersigned (the "Preferred
Shares") as directed in connection with the election of the preferred directors
at the Annual Meeting of Stockholders to be held at The Place At Innsbrook, 4036
Cox Road, Glen Allen, Virginia, on Friday, May 30, 2003 at 9:00 a.m. Eastern
Time or at any adjournments or postponements thereof.

Please instruct the Proxies how to vote your shares for either one or two of the
nominees listed below by placing an "X" in the appropriate box(es). Do not mark
more than one box for each nominee. Preferred Proxy Cards not properly completed
will not be counted.

Election of Directors
---------------------

Leon A. Felman |_| FOR |_| AGAINST |_| ABSTAIN
Barry Igdaloff |_| FOR |_| AGAINST |_| ABSTAIN

When properly executed, this Preferred Proxy Card will cause the Proxies to vote
the Preferred Shares in the manner directed on this Proxy Card by the
undersigned. If no direction is given or if this Preferred Proxy Card is not
completed in accordance with its instructions, the Proxies will abstain from
voting the Preferred Shares.

Date: _________________________________, 2003

_____________________________________________
Signature

_____________________________________________
Signature, if held jointly

PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.