EXHIBIT G


California Investment Fund, L.L.C.


June 1, 2000



VIA FACSIMILE

Dynex Capital, Inc.
Attn: Thomas H. Potts
4551 Cox Road, Suite 300
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
212-713-4205


Dear Mr. Potts and Mr. Dever:

This revised letter of intent is intented 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 and 7 will be binding
upon Seller and Buyer.

1. Proposed value for Dynex Capital, Inc. outstanding stock
and proposed treatment of senior notes.

Buyer, or a subsidiary of Buyer ("Acquisition Sub"), would
enter into a merger transaction pursuant to which Seller would be merged
into Acquisition Sub (the "Merger"). The aggregate purchase price paid in
the Merger (including the dividend arrearages on the preferred stock) would
be $75 million (the "Purchase Price"). In the Merger, Buyer would acquire
all 11,444,188 issued and outstanding shares of common stock of Seller and
all 5,051,495 issued and outstanding shares of preferred stock of Seller.
The Purchaser Price may be allocated to the different classes of stock of
Seller as the Board of Directors of Seller deems appropriate.

Buyer will seek the approval of the holders of the senior
notes of Seller to obtain amendments to the indentures to permit the senior
notes of Seller to remain outstanding.

550 West C Street, 10th Floor
San Diego, California 92101
(619) 687-5000 (619) 687-5010 fax


2. Extension of Option to Purchase.

Seller hereby extends Buyer's option to purchase the Morgan
Stanley Mortgage Capital, Inc. Permanent Multifamily Loans and the Bridge
Commercial Loans under the option agreement dated May 16, 2000 between
Buyer and Seller (the "Option Agreement") for a period of thirty (30)
calendar days from the date of acceptance of this letter of intent. This
option extension shall not be affected by any earlier termination of this
letter of intent.

3. Proposed transaction structure (merger of equals, stock
acquisition, asset purchase or other)

Buyer anticipates that the transaction will be accomplished
through the merger of Seller into Acquisition Sub. Certain assets of Seller
(including the stock of the qualified REIT subsidiaries) that may not be
transferredto Acquisition Sub (which is not a REIT or a qualified REIT
subsidiary) or that Buyer wishes to transfer to a REIT or a qualified REIT
subsidiary will be sold by Seller in transactions pre-arranged by Buyer
immediately prior to the closing of the proposed transaction but after the
satisfaction of all of the other conditions of closing.

4. Anticipated financing source for completing the transaction
(available cash, new debt, existing unused debt lines or
other).

Buyer anticipates that the Purchase Price will be comprised
of working capital of Buyer and financing from its lender.

5. Observation Rights.

Upon the execution of the definitive merger agreement, Buyer
shall be granted a right to designate one person to act as an observer (the
"Observer") at the headerquarters of Seller. The Observer shall also be
entitled to notice of and to attend all meetings of the Board of Directors
of Seller, and to receive any material distributed to the directors in
their capacity as directors of Seller, but will have no voting rights or
rights to participate in any discussions of the Board of Directors of
Seller.

6. Due Diligence.

Seller shall cooperate fully with Buyer in its due diligence
investigation and will make available to Buyer and its financial and legal
advisors all books, records and business and financial information
reasonably requested by Buyer with respect to the subject matter of this
letter of intent until the execution of the definitive merger agreement. In
addition, Seller agrees that Buyer is allowed to contact the financial
advisors, noteholders and stockholders of Seller in order to satisfy the
conditions of Paragraph 8.

7. Definitive Merger Agreement: Exclusive Period.

Seller hereby grants Buyer a forty-five (45) calendar day
period in which Seller will negotiate in good faith and exclusively with
Buyer in an attempt to execute a definitive merger agreement. During this
period, Seller will not discuss or negotiate with, or provide any
information to, any individual, group, joint venture, partnership,
corporation, association, trust, estate or other entity of any nature
(other than Buyer and its affiliates) relating to any transaction involving
the sale of the business or assets of Seller or of any capital stock of
Seller, or any merger, consolidation or similar transaction involving
Seller. The parties will cooperate with each other and use their reasonable
best efforts to negotiate, prepare and execute a definitive merger
agreement during this period. Prior to the execution of the definitive
merger agreement, Seller agrees to promptly notify and provide a copy to
Buyer of any notice from any creditor relating either to an event of
default or a request for acceleration.

8. Any conditions to completing the proposed transaction.

The closing of the proposed transaction is subject, among
other things, to, (i) Seller's performance of its repurchase obligation
with respect to $15.5 million previously provided by Buyer to Seller
pursuant to the Option Agreement, on or before September 30, 2000; (ii)
execution of a definitive merger agreement; (iii) the approval of the
respective Boards of Directors of Buyer and Seller; (iv) the approval of
the majority of the common stockholders of Seller; (v) the approval of at
least 66-2/3% of each series of preferred stockholders of Seller; (vi) the
approval of the holders of senior notes of Seller; (vii) the receipt of all
required governmental approvals; (viii) the receipt of all material
consents from third parties, including waivers and/or restructuring of
Seller credit lines; (ix) Seller not increasing its debt level above the
amount reflected in its April 30, 2000 Assets Liability Matching Schedule;
(x) court approval of the $23.3 million settlement of the AutoBond
litigation and the payment by Seller of this amount; and (xi) Seller not
changing its executive compensation by an amount greater than 10% of 1999
levels. Buyer will consider the employment of certain key employees of
Seller, but that such employment is not a condition to the closing of the
proposed transaction.

9. Publicity.

Except as required by law, the parties agree that there will
be no public announcements or other publicity with respect to the proposed
transaction, this letter of intent, the definitve merger agreement or any
other matters related thereto without the express written consent of Buyer
and Seller.

10. Conduct of Business.

Pending the execution of a definitive merger agreement,
Seller will conduct its business only in the ordinary course of business,
in a manner consistent with past practices, without making any material
change in its business, operations or policies or paying any dividends or
repurchasing any stock. Any transaction involving the sale of assets or a
group of assets entered into after the date of this letter of intent that,
in the aggretate, is on Seller's books with a book value in excess of $5
million shall require the pre-approval of Buyer.

11. Deposit.

Upon the execution of the definitive merger agreement, Buyer
will deposit into an escrow 572,178 shares of common stock of Seller owned
by Buyer (the "Deposit Shares"). In the event that Buyer breaches in any
material respect its obligations under the definitve merger agreement,
Seller shall be entitled to the Deposit Shares. This remedy is intended to
be a liquidated damages payment and is the sole remedy of Seller in the
event of any breach by Buyer of its obligations under the definitve merger
agreement.

12. Break-up Fee.

In consideration of Buyer's incurrence of expenses, including the
significant cost of conducting its due diligence investigation. Buyer shall
be entitled to a break-up fee after the execution of the definitive merger
agreement if one of the following occurs: (i) the Board of Directors of
Seller withdraws its recommendation to the stockholders of Seller in favor
of Buyer's purchase of Seller, or (ii) Seller is unable to obtain approval
of the stockholders or the senior noteholders of Seller. The break-up fee
shall be equal to $2.5 million. This remedy is intended to be a liquidated
damages payment and is the sole remedy of Buyer in the event of any breach
by Seller of its obligations under the definitive merger agreement.

[Signature Page Follows]


This letter of intent will remain outstanding until 5:00 p.m.
Eastern Daylight Time on June 5, 2000, at which time it will expire unless
Seller has executed this letter of intent. Once executed, this letter of
intent shall continue in effect until the earlier of (i) execution and
delivery of a definitive merger agreement; (ii) mutual agreement of Buyer
and Seller; and (iii) the sixtieth day after the execution hereof,
provided, however, that Paragraphs 2 and 7 shall survive the termination of
this agreement.


California Investment Fund, L.L.C.


By: /s/ Michael R. Kelly
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Name: Michael R. Kelly
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Title: Managing Member
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Accepted and agreed to this
_____ day of June, 2000



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