Exhibit 10.8


                              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") as set forth below.

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

o    My employment  agreement with Dynex dated September 30, 1994 will expire on
     September 30, 2001 in accordance  with its terms,  other than I will not be
     subject to the restrictions set forth in Sections 3(a)(iv) and 3(a)(v).

o    My salary will remain at $315,000 per annum.

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

o    I will receive a minimum  bonus of $200,000 on June 30, 2002 for the period
     of January 1, 2001 through June 30, 2002  provided that I am an employee of
     Dynex as of June 30,  2002.  I will not be  entitled to any bonus if I have
     been  terminated  for cause.  I will be entitled to the minimum  bonus if I
     have been terminated without cause.

o    If the  resolution of any  litigation or  arbitration  concerning  Dynex is
     delayed past June 30,  2002,  I will  continue to assist Dynex is resolving
     such  litigation or  arbitration.  I will be paid $200 per hour (or any new
     employer  reimbursed  at such rate if on company  time) plus  out-of-pocket
     expenses for such assistance.

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/ Thomas H. Potts                         /s/ Donald B. Vaden
______________________________             ____________________________________
Thomas H. Potts                            Donald B. Vaden
President                                  Chairman, Compensation Committee