EXHIBIT E


[CALIFORNIA INVESTMENT FUND, INC. LETTERHEAD]



April 26, 2000


VIA FACSIMILE

Dynex Capital, Inc.
Attn: Thomas H. Potts
10900 Nuckols Road, 3rd Floor
Glen Allen, Virginia 23060
804-217-5861

Dynex Capital, Inc.
C/O Investment Banking Division
Paine Webber Incorporated
Attn: Mr. Jonathan P. Dever
1285 Avenue of the Americas
New York, NY 10019
212-713-2000

Dear Mr. Potts and Mr. Dever:

This revised letter of intent is intended to summarize the principal
terms relating to the proposed acquisition by California Investment Fund,
L.L.C. ("Buyer") of Dynex Capital, Inc. and its subsidiaries ("Seller").
The preliminary understandings expressed in this letter are intended to be
the subject of further negotiation and are not intended to be binding,
except as set forth herein. There is no obligation on the part of any party
(other than as set forth in the next sentence) until a definitive merger
agreement is entered into by the parties, which will contain additional
terms and conditions which have yet to be agreed upon. Notwithstanding the
foregoing, upon acceptance of this letter of intent by the Seller, the
provisions of Paragraphs 2, 6 and 7 will be binding upon Seller and Buyer.

1. Proposed value for Dynex Capital, Inc. common stock.

Buyer, or a subsidiary of Buyer ("Acquisition Sub"), intends to
acquire all 11,444,188 issued and outstanding shares of common stock of
Seller, for a price of $2.370 per share in cash, which represents the
current market price of $1.313 and a 8O.758% premium. This would result in
an aggregate purchase price of $27,150,750 for the common stock of Seller.
All unvested and vested options (none of which are in-the-money) will be
cancelled.

2. Option to Purchase.

In consideration of Buyer's incurrence of expenses, including the
significant cost of conducting its due diligence investigation, and in lieu
of any other break-up fee, Seller agrees to grant Buyer the option to
purchase Seller loan No.s 800-631, 800-632 and 800-633 for a total
aggregate purchase price of $19,890,000 payable in cash. This option shall
terminate upon the expiration of the Due Diligence Period (as defined in
Paragraph 6). Buyer shall send written notice to Seller of its exercise of
this option. The option transaction shall close within ten (10) business
days following such notice. This option shall not be affected by any
earlier termination of this letter of intent.


with the terms of this agreement. In the event that no such protective
order or other remedy is obtained, or that the Client waives compliance
with the terms of this agreement, you will furnish only that portion of the
Evaluation Material which you are advised by counsel is legally required
and you will exercise all reasonable efforts to obtain reliable assurance
that confidential treatment will be accorded the Evaluation Material.

4. Termination. Upon the request of the Client, you will return
to the Client the original and all copies of the Evaluation Material in
your possession or in the possession of your Representatives, and you will
destroy all copies of any analyses, compilations, studies or other
documents prepared by you or for your internal use which reflect the
Evaluation Material.

5. No Publicity. You agree, unless otherwise required by law, not
to disclose to any other person the fact that the Evaluation Material has
been made available to you, that discussions or negotiations are taking
place concerning the Possible Transaction or any of the terms, conditions
or other facts with respect thereto (including the status thereof).

6. No Representation or Warranty. You understands and acknowledge
that although the Evaluation Material contains information which the Client
believes to be accurate and relevant for the purpose of your evaluation of
the Possible Transaction, the Client and its Representatives do not make
any representation or warranty, expressed or implied, as to the accuracy or
completeness of the Evaluation Material. You agree that neither the Client
nor its Representatives shall have any responsibility to you or any of your
Representatives relating to or arising from the use of the Evaluation
Material, except as may be specifically provided in any agreement that the
parties hereto may subsequently execute.

7. Standstill. In addition to the agreements specified herein,
you further agree that, for a period of 12 months after the termination of
discussions between you and the Client on the Possible Transaction, unless
specifically invited in writing by the Board of Directors of the Client,
you nor any of your affiliates (as such term is defined under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), will in
any manner, directly or indirectly, (a) effect or seek, offer or propose
(whether publicly or otherwise) to effect, or cause or participate in, or
in any way assist or encourage any other person to effect or seek, offer or
propose (whether publicly or otherwise) to effect or participate in, (i)
the acquisition of securities (or beneficial ownership thereof) or assets
of the Target, (ii) any tender or exchange offer, merger or other business
combination involving the Target, (iii) any recapitalization,
restructuring, liquidation, dissolution or other extraordinary transaction
with respect to the Target or (iv) any "solicitation" of "proxies" (as such
terms are used in the proxy rules of the Securities and Exchange
Commission) or consent to vote any voting securities of the Target; (b)
form, join or in any way participate in a "group" (as defined under the
Exchange Act) or otherwise act, alone or in concert with others, to seek to
control or influence the management, Board of Directors or policies of the
Target; or (c) enter into any discussion or arrangements with any third
party with respect to any of the foregoing (collectively, the "Standstill
Restrictions"). In addition, you agree that for a period of six months
following the termination of discussions between you and the Client on the
Possible Transaction, you will not initiate employment discussions with any
employee of the Target.

8. No Obligation to Consummate Possible Transaction. Each of the
parties hereto agree that unless and until a definitive agreement between
the parties with respect to the Possible Transaction has been executed and
delivered, neither party will be under any legal obligation of any kind
with respect to such a transaction by virtue of this agreement or any
written or oral expression with respect to such a transaction by any of its
Representatives, except, in the case of this agreement, for the matters
specifically agreed to herein.

9. Specific Performance. Any breach of the parties' mutual
understandings with respect to publicity or any breach of your
confidentiality undertaking by anyone making any disclosure or
misappropriation of the Evaluation Material could cause irreparable harm to
the Client, the amount of which would be extremely difficult to estimate.
Accordingly, it is understood and agreed that monetary damages would not be
a sufficient remedy for any material breach of this agreement and that
specific performance and injunctive relief shall be appropriate remedies
for any such breach or any threat of such breach. Such remedies shall not
be deemed to be the exclusive remedies for any such breach of this
agreement but shall be in addition to all other remedies available at law
or in equity.

10. Affiliates. Each of the parties hereto agree that their
respective affiliates shall be subject to the terms of this agreement.

11. Amendments and Waivers. This agreement may be amended or
modified, and any of the terms or covenants hereof may be waived, only by a
written instrument duly executed by each of the parties hereto, or in the
case of a waiver, by the party waiving compliance.

12. Applicable Law. This agreement shall be governed by, and
construed in accordance with, the internal laws of the State of California
applicable to agreements made and to be performed therein.

13. Severability. If any provisions of this agreement, or the
application thereof to any person, place or circumstance, shall be held by
a court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this agreement and such provision, as applied to other
persons, places or circumstances shall remain in full force and effect.


This agreement is being delivered to you in duplicate. Please
confirm your agreement with the foregoing by signing and returning the
duplicate copy to the undersigned.

Very truly yours,

California Investment Fund, LLC


By:
---------------------------
Michael R. Kelly
Managing Member




Accepted and Agreed to as of
The date first written above


By:
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Name:
Its: