Exhibit 10.9


DYNEX CAPITAL, INC.
TERMS OF EMPLOYMENT


September 4, 2001


Mr. Donald B. Vaden
Chairman of Compensation Committee
Dynex Capital, Inc.
4551 Cox Road, Suite 300
Glen Allen, Virginia 23060

Dear Don:

This letter will formalize the terms of my employment with Dynex Capital, Inc.
("Dynex" or "the Company") as set forth below.

o I agree to continue as an employee of Dynex through June 30, 2002.

o My salary will remain at $180,000 per annum.

o The benefits that I currently receive will remain the same.

o I will receive a bonus of $120,000 at the earliest of (i) June 30, 2002;
(ii) a change in voting control of the Company's common stock in excess
of 20%; (iii) the material modification of the my current duties or
responsibilities or the geographic location of my employment; or
(iv) the termination of my employment by the Company for any reason
other than gross negligence, an act of bad faith which results in the
injuring of the business of the Company, or the commission of a felony
or any other crime involving moral turpitude, fraud or misrepresentation
by the Recipient whether or not related to the business or property of the
Company.

o I will receive a grant of 30,000 Stock Appreciation Rights (SARs) pursuant
to the Company's 1992 Stock Incentive Plan dated with a strike price of
$2.00 which will vest 100% at the earliest of (i) June 30, 2002; (ii) a
change in voting control of the Company's common stock in excess of 20%;
(iii) the material modification of the my current duties or
responsibilities, or the geographic location of my employment; or (iv) the
termination of my employment by the Company for any reason other than
gross negligence, an act of bad faith which results in the injuring of the
business of the Company, or the commission of a felony or any other crime
involving moral turpitude, fraud or misrepresentation by the Recipient
whether or not related to the business or property of the Company. Such
SARs will terminate on June 30, 2004.

o To the extent any disputes arise as a result of this agreement, we hereby
agree that the senior attorney for personnel/employment related matters at
the law firm of Williams, Mullen, Christian & Dobbins will designate an
arbitrator to hear the dispute, and the decision of such arbitrator will be
final. The arbitrator will also determine how the cost of the arbitration
will be borne among the parties.

If the above is acceptable, please so indicate by signing below.

Sincerely, Acknowledged and Agreed:



/s/ Stephen J. Benedetti /s/ Donald B. Vaden
- -------------------------------- --------------------------------------
Stephen J. Benedetti Donald B. Vaden
Executive Vice President Chairman, Compensation Committee