EXHIBIT 8.1

July 16, 1997




Dynex Capital, Inc.
10900 Nuckols Road
Glen Allen, Virginia 23060

Re: Tax Opinion
-----------

Ladies and Gentlemen:

We have acted as counsel to Dynex Capital, Inc. ("Dynex"), in
connection with the preparation of a registration statement (the "Registration
Statement") to be filed with the Securities and Exchange Commission with respect
to an offering of Senior Notes (the "Notes") by Dynex. You have requested our
opinion regarding Dynex's qualification as a real estate investment trust
("REIT") pursuant to sections 856 through 860 of the Internal Revenue Code of
1986, as amended (the "Code"), for its 1996 taxable year. Unless otherwise
stated, all section references herein are to the Code. In addition, you have
requested our opinion with respect to whether Dynex's organization and
contemplated method of operations are such as to enable it to continue to
qualify as a REIT for its 1997 taxable year and subsequent taxable years.

Dynex has a number of wholly-owned subsidiaries ("qualified REIT
subsidiaries"), the income, liabilities, and assets of which are consolidated
with those of Dynex for federal income tax purposes. This letter refers to
Dynex, together with such subsidiaries, as "Consolidated Dynex." In connection
with the opinions rendered below, we have examined the following:

1. The Articles of Incorporation of Dynex, as amended;

2. The bylaws of Dynex as restated on June 22, 1992;

3. Consolidated Dynex's federal income tax returns for its taxable
years 1994 and 1995; and

4. The prospectus included in the registration statement to which this
letter will be filed as an exhibit.




Dynex Capital, Inc.
July 16, 1997
Page 2


In connection with the opinions rendered below, we have assumed that:

1. Each of the documents referred to above has been duly authorized,
executed, and delivered, is authentic, if an original, or accurate, if a copy,
and has not been amended;

2. During Consolidated Dynex's 1997 taxable year and subsequent taxable
years, it will continue to conduct its affairs in a manner that will make the
representations set forth below true for such years;

3. Neither Dynex nor any subsidiary of Dynex will make any amendments
to its organizational documents after the date of this opinion that would affect
Consolidated Dynex's qualification as a REIT for any taxable year; and

4. No actions will be taken by Consolidated Dynex or any subsidiary of
Dynex after the date hereof that would have the effect of altering the facts
upon which the opinions set forth below are based.

Furthermore, we have relied upon the correctness of the following
representations of Consolidated Dynex and its authorized representatives that,
at all times relevant hereto:

From the date Dynex and Consolidated Dynex were organized through the
date hereof:

1. Neither Dynex nor any subsidiary thereof has ever been subject by
law to the supervision or examination by state, or federal authorities having
supervision over banking institutions.

2. Neither Dynex nor any subsidiary thereof has ever been a savings
institution chartered or supervised as a savings and loan or similar association
under federal or state law.

3. Neither Dynex nor any subsidiary thereof has ever been a small
business investment company operating under the Small Business Investment Act of
1958.




Dynex Capital, Inc.
July 16, 1997
Page 3

4. Neither Dynex nor any subsidiary thereof was created by or pursuant
to an act of a state legislature for purposes of promoting, maintaining, and
assisting the economy and industry within a state on a regional or state-wide
basis by making loans to be used in trades or businesses which would generally
not be made by banks within such region or state in the ordinary course of
business.

5. Neither Dynex nor any subsidiary thereof was an insurance company to
which Subchapter L of the Code applies.

6. Beneficial ownership of the shares of Dynex (the "Shares") was held
by 100 or more persons.

7. Dynex is a self-managed entity and its Shares, subject to certain
excess share limitations, are transferable.

8. At no time during the last half of any taxable year was more than
50% in value of the outstanding stock of Dynex owned, directly or indirectly, by
or for five or fewer individuals. For this purpose, the Shares are treated as
owned indirectly by or for an individual if such individual would be treated as
owning such Shares under section 544 as modified by section 856(h).

9. Consolidated Dynex's election to be treated as a REIT was properly
made, has not been revoked, and Dynex has not been notified that such election
has been terminated.

10. At the close of each quarter of each taxable year seventy-five
percent (75%) or more of the value of Consolidated Dynex's total assets
consisted of cash and cash items (including receivables arising in the ordinary
course of Consolidated Dynex's operations), government securities, and real
estate assets (including interests in real property, interests in mortgages on
real property, and interests in REMICs to the extent provided in section
856(c)(6)(E)), and shares or transferable certificates of beneficial interest in
other qualified REITs) (the "75% test").

11. With respect to any consumer installment loans on manufactured
housing, which are assets of Consolidated Dynex as described in paragraph 10
immediately





Dynex Capital, Inc.
July 16, 1997
Page 4

above, that the associated manufactured housing units are secured to a site and
are inherently permanent structures.

12. Not more than five percent (5%) of the value of Consolidated
Dynex's total assets consisted of securities of any one issuer, unless such
securities are treated as real estate assets under the 75% test.

13. The only stock that has ever been held by Consolidated Dynex in
Dynex Holding, Inc., SMFC Holding, Inc., and Saxon Holding, Inc. (the "non-REIT
subsidiaries"), is nonvoting preferred stock and Consolidated Dynex does not
have any agreement with the holders of the voting stock of the non-REIT
subsidiaries or the directors of the non-REIT subsidiaries as to (i) who will be
elected as a director of a non-REIT subsidiary; (ii) who can own the voting
stock of a non-REIT subsidiary; or (iii) who can or will serve as an officer of
a non-REIT subsidiary. In addition, Consolidated Dynex does not own, and has not
owned, more than ten percent (10%) of the outstanding voting securities of any
other corporation (or entity treated as a corporation for federal income tax
purposes) at any point in time since the formation of Dynex, excluding for
purposes of this representation such securities treated as real estate assets
under the 75% test.

14. Consolidated Dynex did not receive or accrue any rents (other than
an immaterial amount received from sublease tenants) from either real or
personal property.

15. Consolidated Dynex did not receive or accrue as income, directly or
indirectly, any interest or other amount determined in whole or in part with
reference to the income or profits derived by any person (excluding interest (A)
based solely on a fixed percentage or percentages of receipts or sales or (B) to
the extent described in section 856(f)(2)).

16. Consolidated Dynex did not own any mortgage whose terms entitled it
to receive a specified portion of any gain realized on the sale or exchange of
the real property securing the mortgage or any gain that would be realized if
such property were sold on a specified date (i.e., shared appreciation
mortgages).



Dynex Capital, Inc.
July 16, 1997
Page 5


17. At least seventy-five percent (75%) of Consolidated Dynex's gross
income (excluding gross income from prohibited transactions) for any taxable
year was derived from:

(a) interest on obligations secured by mortgages (including
consumer installment loans on manufactured housing) on real property or on
interests in real property,

(b) gain from the sale or other disposition of real property
(including interests in real property and interests in mortgages on real
property) which was not held as inventory or primarily for sale to customers in
the ordinary course of its trade or business,

(c) dividends or other distributions on, and gain (other than gain
from prohibited transactions) from the sale or other disposition of,
transferable shares (or transferable certificates of beneficial interest) in
other REITs,

(d) abatements and refunds of taxes on real property,

(e) income and gain derived from foreclosure property,

(f) amounts (other than amounts the determination of which depends
in whole or in part on the income or profits of any person) received or accrued
as consideration for entering into agreements (i) to make loans secured by
mortgages on real property or on interests in real property, or (ii) to purchase
or lease real property (including interests in real property and interests in
mortgages on real property),

(g) gain from the sale or other disposition of real estate assets
which is not a prohibited transaction solely by reason of section 857(b)(6), and

(h) income which was attributable to stock or debt instruments
acquired through the temporary investment of new capital and received or accrued
during the one year period beginning on the date on which Consolidated Dynex
received such capital.




Dynex Capital, Inc.
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Page 6

18. At least ninety-five percent (95%) of Consolidated Dynex's gross
income (excluding gross income from prohibited transactions) for any taxable
year was derived from:

(a) sources which satisfy the seventy-five percent (75%) income
test described in paragraph 17 above,

(b) dividends,

(c) interest,

(d) payments with respect to bona fide interest rate swap, cap, or
floor agreements entered into to hedge any variable interest rate indebtedness
incurred or to be incurred to acquire or carry real estate assets ("interest
rate agreements"), and

(e) gain from the sale or other disposition of stocks and
securities (including interest rate agreements).

19. Less than thirty percent (30%) of Consolidated Dynex's gross income
for any taxable year was derived from the sale or other disposition of:

(a) stock or securities (including interest rate agreements) held
for less than one year,

(b) property in a transaction which is a prohibited transaction,
and

(c) real property (including interests in real property and
interests in mortgages on real property) held for less than four years other
than (i) property compulsorily or involuntarily converted within the meaning of
section 1033, and (ii) property which is foreclosure property.

20. For each taxable year, the deduction for dividends paid during the
taxable year (determined without regard to capital gains dividends) equaled or
exceeded (i) the sum of ninety-five percent (95%) of Consolidated Dynex's real
estate investment trust taxable income for the taxable year (determined without
regard to the deduction for





Dynex Capital, Inc.
July 16, 1997
Page 7

dividends paid and excluding any net capital gains), and ninety-five percent
(95%) of the excess of the net income from foreclosure property over the tax
imposed on such income by section 857(b)(4)(A), minus (ii) any excess noncash
income as determined under section 857(e).

21. All distributions paid by Consolidated Dynex with respect to its
Shares were pro rata with no preference to any share of stock as compared to any
other shares of the same class and with no preference (other than as required
under the Amended Articles of Incorporation of Dynex between its common and
preferred stock) to one class of stock as compared to another class.

22. As of the close of any taxable year, Consolidated Dynex had no
earnings and profits accumulated in any non-REIT year.

23. During its taxable year 1996, Dynex has had at least 2000
shareholders of record of its shares on any dividend record date. In prior
taxable years, Dynex had at least 201 shareholders of record of its shares as of
any dividend record date.

24. Promptly after the end of each taxable year, Dynex demanded written
statements from shareholders of record who on any dividend record date owned 5%
(or 1%, as the case may be), or more of the Shares disclosing (i) the actual
owners of the shares (those persons required to include Dynex's dividends in
gross income), (ii) and the maximum number of Shares (including the number and
face value of securities convertible into Shares) that were considered owned,
directly or indirectly (within the meaning of section 544 as modified by section
856(h)) by each of the actual owners of the Shares.

25. Dynex maintained the information received with respect to such
written demands in its filing district available for inspection by the Internal
Revenue Service at any time.

26. Dynex maintained sufficient records to show that it complied with
the 75% test described at paragraph 10 above for all taxable years in its filing
district available for inspection by the Internal Revenue Service at any time.




Dynex Capital, Inc.
July 16, 1997
Page 8

27. Dynex and the plan administrator under Dynex's Dividend
Reinvestment and Stock Purchase Plan (the "Plan") have administered the Plan in
accordance with the terms of the prospectus describing the Plan.

28. Dynex has owned all the stock of each qualified REIT subsidiary at
all times during the period of such corporation's existence.

29. During its 1997 taxable year and subsequent taxable years,
Consolidated Dynex expects to continue to satisfy all of the representations
described in paragraphs 1 through 27 above.

As used herein, the term "prohibited transaction" means the sale or
other disposition of property held as inventory or primarily for sale to
customers in the ordinary course of Consolidated Dynex's trade or business. The
term "foreclosure property" means any real property (including interests in real
property) and any personal property incident to such real property, acquired by
Consolidated Dynex as the result of its having bid in such property at
foreclosure, or having otherwise reduced such property to ownership or
possession by agreement or process of law after there was a default (or default
was imminent) on a lease of such property or on an indebtedness which such
property secured. Such term does not include property acquired by Consolidated
Dynex as a result of indebtedness arising from the sale or other disposition of
property held as inventory or for sale in the ordinary course of Consolidated
Dynex's trade or business which was not originally acquired as foreclosure
property.

Based solely on the documents, assumptions, and representations set
forth above, and without further investigation, we are of the opinion that
Consolidated Dynex qualified as a REIT in its 1996 taxable year and that its
organization and contemplated method of operation are such that it will continue
to so qualify for its 1997 taxable year and subsequent taxable years. Except as
described herein we have performed no further due diligence and have made no
efforts to verify the accuracy or genuineness of the documents, assumptions, and
representations set forth above.

The foregoing opinion is based on current provisions of the Code and
Treasury Regulations, published administrative interpretations thereof, and
published court




Dynex Capital, Inc.
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Page 9

decisions. The Internal Revenue Service has not yet issued Regulations or
administrative interpretations with respect to various provisions of the Code
relating to REIT qualification. No assurance can be given that the law will not
change in a way that will prevent Consolidated Dynex from qualifying as a REIT
or that the Internal Revenue Service will not disagree with this opinion.

The foregoing opinion is limited to federal income tax matters
addressed herein, and no other opinions are rendered with respect to other
federal tax matters or any issues arising under the tax laws of any state or
locality. We undertake no obligation to update this opinion after the date of
this letter. This opinion letter is solely for the information and use of the
addressee and may not be relied upon, quoted, or otherwise used for any purpose
by any other person without our express written consent.

We consent to the references to this firm in the prospectus filed with
the Registration Statement and to the filing of this opinion as an exhibit to
the Registration Statement in which the prospectus is included. We do not
thereby admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission thereunder.


Very truly yours,


VENABLE, BAETJER AND HOWARD, LLP