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PRESS RELEASE


FOR IMMEDIATE RELEASE CONTACT: Investor Relations
May 11, 2004 804-217-5897


DYNEX CAPITAL, INC. REPORTS RESULTS OF
RECAPITALIZATION AND TENDER OFFER, AND
THE RESULTS FOR FIRST QUARTER


Dynex Capital, Inc. (NYSE: DX) reported results for its recently completed
recapitalization and tender offer, and the results for the first quarter of
2004. Information contained in this press release includes:

o The Company's shareholders overwhelmingly approved a recapitalization
plan for the Company, and holders of the Series A, Series B and
Series C preferred stock tendered for $823,000 in senior notes;

o As a result of the recapitalization plan, on a preliminary basis,
the Company's 1,866,677 shares of Series A, Series B and Series C
preferred stock will convert into a maximum 5,628,794 shares of
Series D preferred stock and 1,288,554 shares of common stock;

o On a pro forma basis as of March 31, 2004, book value per common share
will increase by $0.19 as a result of the implementation of the
recapitalization plan;

o Results for the first quarter include:

o The Company's investment portfolio generated cash flow of $11.1
million for the quarter;

o The Company incurred a net loss of $5.4 million for the quarter,
and a net loss to common shareholders of $6.6 million on
continued high provision for loan losses;

o The Company reported book value per common share of $6.98 at
March 31, 2004 versus $7.55 at December 31, 2003; and

o During the first quarter, the Company also entered into an agreement
to redeem and subsequently re-sell certain manufactured housing
securitization financing bonds outstanding at a net
premium to the Company of $7.4 million. The Company received this
$7.4 million on the redemption and resale in April 2004, which
lowered the effective borrowing rate on approximately $154.8
million of securitization financing from 7.1% to 5.6%.

The Company has scheduled a conference call for Wednesday, May 12,
2004, at 11:00 a.m. Eastern Daylight Time to discuss first quarter results and
the recapitalization transaction. Investors can listen in on the call by dialing
in at (800) 731-2911.

Recapitalization Transaction
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The Company's shareholders approved the Company's recapitalization plan
at special meetings held at the Company's headquarters and, pursuant to the
tender offer that expired at 9:00 a.m. Eastern Daylight Time on May 10, 2004,
have tendered for $823,000 in senior unsecured notes due May 2007. As a result
of the shareholder approval of the recapitalization plan, on a preliminary
basis, the Series A, Series B and Series C preferred stock will convert into a
maximum 5,628,794 shares of Series D preferred stock and 1,288,554 shares of
common stock. The Series D preferred stock will have an issue price of $10 per
share and pay $0.95 per year in dividends. All prior dividends-in-arrears on the
Series A, Series B and Series C preferred stock will be extinguished. Interest
on the senior notes and dividends on the Series D preferred stock will begin to
accrue as of April 7, 2004. On a pro forma basis, utilizing information as of
March 31, 2004, the Company's book value per common share will increase by $0.19
per share. On a preliminary basis, common stock outstanding after the
recapitalization transaction closes will increase from 10,873,903 to 12,162,457
shares. On a fully diluted basis, assuming the conversion of the Series D
preferred stock at its one-for-one conversion ratio, outstanding common stock
would be 17,791,251 shares.

First Quarter 2004 Results
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For the quarter ended March 31, 2004, the Company reported a net loss
of $5.4 million versus net income of $2.0 million for the same period for 2003.
After consideration of the preferred stock charge, the Company reported a net
loss to common shareholders of $6.6 million or $0.60 per common share for 2004
versus net income of $12.5 million, or $1.15 per common share for 2003. Net
income per common share for 2003 included a benefit of $10.4 million from the
tender offer on preferred stock completed in February 2003.

The Company reported that cash flow from its investment portfolio was
$11.1 million for the first quarter 2004, versus $13.2 million for the fourth
quarter of 2003. Cash flow declined in the first quarter principally as a result
of reduced collections from the Company's delinquent property tax receivables
portfolio, declines in interest-earning assets from prepayments in the
investment portfolio, and lower overall yields on investments. Delinquent
property tax receivable collections were $1.8 million in the first quarter 2004
versus $3.5 million in the fourth quarter 2003, in part due to seasonality
issues and in part due to a now-resolved uncertainty as to allowable charges on
the collection of certain liens.

The Company reported net interest margin before provision for loan
losses on its investment portfolio of $6.4 million in the first quarter 2004
compared to $11.4 million in the first quarter 2003. After provision for loan
losses, net interest margin was a negative $0.8 million versus $5.6 million in
2003. Provision for loan losses in the first quarter 2004 was $7.2 million
versus $5.8 million in 2003. Provision for loan losses for the first quarter
2004 includes $6.1 million related to the Company's manufactured housing loan
portfolio. The Company expects to provide a similar amount in the second quarter
2004. Beginning in the third quarter 2004, provision for loan losses should
decline as the Company will have substantially reserved its remaining net credit
exposure on manufactured housing loans.

Impairment charges for the first quarter of 2004 were $1.7 million
versus $2.1 million for the same period in 2003. Impairment charges for 2004
include principally those charges on a debt-security backed principally by
manufactured housing loans. General and administrative expenses were $2.5
million in first quarter 2004 versus $2.0 million in the first quarter 2003.
General and administrative expenses included approximately $0.6 million in fees
and costs associated with the litigation in Texas, where the jury found against
the Company in the amount of $252,577. The Company continues to contest the
verdict in the case and the Court hears motions to enter the jury verdict later
this month.

Balance Sheet
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Total assets at March 31, 2004, were $1.8 billion, a decline of $65.7
million from December 31, 2003. The decline in assets was primarily the result
of prepayments in the Company's securitized finance receivables. Prepayment
speed for the entire investment portfolio as measured by the "constant
prepayment rate", or CPR, was 18% during the first quarter of 2004 versus 21%
during the fourth quarter of 2003. Prepayments reduce the amount of the
Company's interest-earning assets. CPR on the Company's single-family mortgage
loan and securities portfolio was 30% during the quarter. Of the $1.8 billion of
assets in the investment portfolio, approximately $326.8 million were
adjustable-rate assets, substantially all of which were single-family loans and
securities. The balance of investment portfolio assets are fixed-rate,
substantially all of which are manufactured housing loans and commercial
mortgage loans.

Shareholders' equity declined to $144.8 million at March 31, 2004,
versus $149.8 million at December 31, 2003. The decrease in shareholders' equity
was due to the net loss for the quarter. Common book value per share, net of
liquidation preference on Series A, Series B, and Series C Preferred Stock, was
$6.98 per share at March 31, 2004. On a pro forma basis, considering the impact
of the recapitalization transaction, book value per common share is $7.17.

Discussion
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Mr. Thomas B. Akin, Chairman of the Board of Directors of the Company,
stated, "We are extremely pleased that the shareholders overwhelmingly approved
the recapitalization plan of the Company. This was a very important event for
the Company, and signals that the shareholders are solidly behind the Board and
management as we pursue strategic alternatives. Currently we have $15 million of
free cash to invest, which should grow to in excess of $23 million by the end of
the second quarter. Our MERIT Series 13 manufactured housing loan securitization
financing reaches its optional redemption date in August, and the two most
senior classes in that Series will carry coupons in excess of 8.00%, suggesting
there is value in this optional redemption right not reflected in our balance
sheet. The Board will be actively engaged over the coming months to review
strategic alternatives with the hope of providing guidance to our shareholders
over the balance of the year. The market is anticipating the Federal Reserve
will begin to raise rates in the very near term, and while that will impact our
investment portfolio cash flows, we believe it may provide opportunities for the
Company to begin to strategically deploy its capital. The Company will be
patient in that regard."

In regard to first quarter results, Mr. Stephen J. Benedetti, Chief
Financial Officer of the Company, added, "First quarter 2004 results include
approximately $6.0 million of provisions for loan losses on the Company's
manufactured housing loan portfolio, resulting in a negative net margin of $0.8
million. The Company anticipates being substantially reserved for this credit
exposure by the end of the second quarter, and barring unforeseen circumstances,
would expect to begin reporting modest net income in the third quarter of 2004
as provision for loan losses decline. General and administrative expenses during
the first quarter were high due to costs associated with the litigation in
Texas. The hearing to enter the verdict against the Company is later this month,
and the Company anticipates appealing the verdict if it is entered by the
Court."

Mr. Benedetti continued, "Cash flows from the investment portfolio were
$11.1 million during the quarter. We expect cash flows in the second quarter to
approximate $19 million, inclusive of the $7.4 million received on the
redemption and resale of the securitization financing bonds in April. The
Federal Reserve has clearly indicated that short-term rates will be increasing
in the near-term, which will have the effect of driving up our borrowing costs,
but also should slow prepayments in the investment portfolio. As the majority of
securitization financing on the balance sheet is fixed-rate, however, and
considering the interest-rate hedges entered into previously to mitigate the
risk of rising interest rates on a portion of its variable-rate financing, the
Company does not expect a significant reduction in our quarterly investment
portfolio cash flow in 2004 from rising interest rates based on the forward
LIBOR curve."

Mr. Akin concluded, "The conversion of the Series A, Series B, and
Series C preferred stock to Series D preferred stock and related issuance of
common stock, and the issuance of the senior notes, should occur no later than
the end of this month. We will pay a dividend on the Series D preferred stock
for the second quarter in July. Beyond that, the Board will continue to look at
attractive alternatives for the use of our capital."

Dynex Capital, Inc. is a financial services company that elects to be
treated as a real estate investment trust (REIT) for federal income tax
purposes. Additional information about Dynex Capital, Inc. is available at
www.dynexcapital.com.


Note: This document contains "forward-looking statements" within the meaning of
the Private Securities Litigation Act of 1995. The words "believe," "expect,"
"forecast," "anticipate," "estimate," "project," "plan," and similar expressions
identify forward-looking statements that are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified. The Company's
actual results and timing of certain events could differ materially from those
projected in or contemplated by the forward-looking statements as a result of
unforeseen external factors. These factors may include, but are not limited to,
changes in general economic and market conditions, disruptions in the capital
markets, fluctuations in interest rates, defaults by borrowers, defaults by
third-party servicers, prepayments of investment portfolio assets, the accuracy
of subjective estimates used in determining the fair value of certain financial
assets of the Company, the impact of recently issued financial accounting
standards, increases in costs and other general competitive factors. For
additional information, see the Company's Annual Report on Form 10-K for the
year ended December 31, 2003, as filed with the Securities and Exchange
Commission.

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DYNEX CAPITAL, INC.
Consolidated Balance Sheets
(Thousands except share data)
(unaudited)