Dynex Capital, Inc.




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                    Notice of Special Meeting of Stockholders
                                       and
                                 Proxy Statement


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                         Special Meeting of Stockholders
                                  July 26, 1999




                               DYNEX CAPITAL, INC.




                                                     June 30, 1999






To Our Stockholders:

     You are cordially  invited to attend a Special  Meeting of  Stockholders of
Dynex Capital,  Inc. (the "Company") to be held in The Atrium at the Highwoods I
building located at 10900 Nuckols Road, Glen Allen, Virginia on Monday, July 26,
1999, at 2:00 p.m. Eastern time.

     The  business of the meeting is to vote on an  amendment  to the  Company's
Articles of  Incorporation  to effect a reverse  stock split  whereby  each four
shares of  outstanding  common stock,  par value $0.01,  would be  automatically
converted into one share of outstanding common stock, par value $0.01.

     While stockholders may exercise their right to vote their shares in person,
we  recognize  that  many  stockholders  may not be able to attend  the  Special
Meeting.  Accordingly,  we have  enclosed a proxy  which will enable you to vote
your shares on the matter to be  considered  at the Special  Meeting even if you
are  unable to  attend.  All you need to do is mark the proxy to  indicate  your
vote,  date and sign the  proxy,  and  return  it in the  enclosed  postage-paid
envelope as soon as conveniently  possible.  If you desire to vote in accordance
with management's recommendations, you need not mark your votes on the proxy but
need only sign, date and return the proxy in the enclosed  postage-paid envelope
in order to record your vote.

                                                        Sincerely,



                                                        Thomas H. Potts
                                                        President





                               DYNEX CAPITAL, INC.

                               10900 Nuckols Road
                           Glen Allen, Virginia 23060
                                 (804) 217-5800
                          ____________________________


                    NOTICE OF SPECIAL MEETING OF STOCKHOLDERS





To Our Stockholders:

     A Special  Meeting of Dynex Capital,  Inc. (the  "Company") will be held in
The Atrium at the  Highwoods  I building  located at 10900  Nuckols  Road,  Glen
Allen, Virginia on Monday, July 26, 1999, at 2:00 p.m. Eastern time, to consider
and act upon the proposal to amend the Company's  Articles of  Incorporation  to
effect a  one-for-four  reverse  stock split  whereby each four shares of common
stock,  par value  $0.01,  would be  automatically  converted  into one share of
common stock, par value $0.01, of the Company.

     Only  stockholders of record at the close of business on June 28, 1999, the
record date, will be entitled to vote at the Special Meeting.

     Management  desires to have maximum  representation  at the Special Meeting
and respectfully  requests that you date, execute and promptly mail the enclosed
proxy in the  accompanying  postage-paid  envelope  whether or not you expect to
attend the meeting in person.  A proxy may be revoked by a stockholder by notice
in  writing to the  Secretary  of the  Company at any time prior to its use,  by
presentation  of a later-dated  proxy,  or by attending the Special  Meeting and
voting in person.

                                           By order of the Board of Directors



                                           Lynn K. Geurin
                                           Secretary




Dated:  June 30, 1999






Directions  from the  North  on  Interstate  95:

     Take the Interstate 295 West-Charlottesville exit. Travel approximately 8.5
miles  on  Interstate  295  West  towards  Charlottesville.   Take  the  Nuckols
Road-South Exit.  Travel  approximately 0.5 mile. Turn left at first light. Turn
right into the parking lot of the Highwoods I building. The Atrium is located on
the first floor.

Directions from the airport:

     (In regards to the map above - Interstate  64 should be used as a reference
point only) As you leave the airport on 156  North-Airport  Drive follow the "to
295-North"  signs.  You will pass the  Interstate 64 East and West exits and the
Interstate  295 South exit.  After these  exits,  continue on 156  North-Airport
Drive approximately 2.5 miles. Take the "295 North to 95-North and 64-West" exit
North towards  Washington.  Stay on Interstate 295 North for approximately  19.5
miles.  Take the Nuckols  Road-South Exit.  Travel  approximately 0.5 mile. Turn
left at  first  light.  Turn  right  into the  parking  lot of the  Highwoods  I
building. The Atrium is located on the first floor.

Directions from the South or Downtown:

     Take  Interstate 64 West to  Interstate  295 towards  Washington.  Take the
first exit - Nuckols Road South.  Travel  approximately  0.5 mile.  Turn left at
first light.  Turn right into the parking lot of the  Highwoods I building.  The
Atrium is located on the first floor.





                               DYNEX CAPITAL, INC.
                               10900 Nuckols Road
                           Glen Allen, Virginia 23060
                                 (804) 217-5800
                          ____________________________

                                 PROXY STATEMENT
                         SPECIAL MEETING OF STOCKHOLDERS
                                  July 26, 1999

To Our Stockholders:

     This Proxy  Statement is furnished  with the  solicitation  by the Board of
Directors of Dynex  Capital,  Inc. (the  "Company") of proxies to be used at the
Special  Meeting of  Stockholders of the Company to be held in The Atrium at the
Highwoods I building  located at 10900 Nuckols Road, Glen Allen,  Virginia.  The
Special  Meeting is being  held for the  purpose  set forth in the  accompanying
notice  of  Special  Meeting  of  Stockholders.   This  Proxy   Statement,   the
accompanying  proxy card and the notice of Special Meeting are being provided to
stockholders beginning on or about June 30, 1999.

                               GENERAL INFORMATION

Solicitation

     The  enclosed  proxy is solicited by the Board of Directors of the Company.
The costs of this solicitation will be borne by the Company. Proxy solicitations
will be made by mail, and also may be made by personal interview,  telephone and
telegram by directors and officers of the Company. Brokerage houses and nominees
will be requested  to forward the proxy  soliciting  material to the  beneficial
owners  of the  Company's  common  stock  and to  obtain  authorization  for the
execution of proxies. The Company will, upon request, reimburse such parties for
their  reasonable  expenses in  forwarding  proxy  materials to such  beneficial
owners.  Additionally,  the Company has engaged the firm of MacKenzie  Partners,
Inc., New York, New York, to conduct proxy solicitations on its behalf at a cost
estimated to be $5,000, plus reasonable out-of-pocket expenses.

Voting Rights

     Holders of shares of the Company's common stock at the close of business on
June 28, 1999,  the record date,  are entitled to notice of, and to vote at, the
Special  Meeting.  As of June 21, 1999,  46,036,949  shares of common stock were
outstanding.  Each  share of common  stock  outstanding  on the  record  date is
entitled  to one  vote on the  matter  presented  at the  Special  Meeting.  The
presence,  in person or by proxy, of stockholders entitled to cast a majority of
all the votes  entitled to be cast  constitutes a quorum for the  transaction of
business at the Special Meeting.  The beneficial  ownership of common stock held
by the directors,  certain  executive  officers and holders of 5% or more of the
outstanding  common stock is set forth in the Proxy  Statement under the caption
"Ownership of Common Stock".

Voting of Proxies

     Shares  of  common  stock  represented  by all  properly  executed  proxies
received in time for the Special  Meeting will be voted in  accordance  with the
choices  specified in the proxy.  Unless contrary  instructions are indicated on
the proxy, the shares will be voted FOR the amendment to the Company's  Articles
of  Incorporation  (the  "Amendment") to effect the  one-for-four  reverse stock
split of the issued and outstanding shares of common stock. No other matters may
be brought before the Special Meeting other than as set forth herein.

Revocability of Proxy

     The giving of the  enclosed  proxy does not  preclude  the right to vote in
person should the  stockholder  delivering  the proxy so desire.  A proxy may be
revoked at any time prior to its exercise by  delivering a written  statement to
the  Secretary of the Company that the proxy is revoked,  by  presenting  to the
Company a later-dated proxy executed by the person executing the prior proxy, or
by attending  the Special  Meeting and voting in person.  Dissenters'  rights of
appraisal will not be available  under Virginia law with respect to the proposed
Amendment.


                            OWNERSHIP OF COMMON STOCK

     The table below sets  forth,  as of May 31,  1999,  the number of shares of
common  stock  beneficially  owned by owners of more  than five  percent  of the
Company's common stock  outstanding,  each Director and executive officer of the
Company,  and the number of shares  beneficially  owned by all of the  Company's
Directors and executive  officers as a group.  To the  Company's  knowledge,  no
other person  beneficially owns more than 5% of the outstanding shares of common
stock.  Unless otherwise  indicated,  all persons named as beneficial  owners of
common  stock have sole voting power and sole  investment  power with respect to
the shares beneficially owned.




           Name of                                              Amount and Nature of      Percent of
      Beneficial Owner                                          Beneficial Ownership     Common Stock
                                                                                        

      J. Sidney Davenport                                             101,424                    *
      Richard C. Leone                                                  3,200 (1)                *
      Thomas H. Potts                                               1,623,441 (2)               3.53%
      Donald B. Vaden                                                  31,192 (3)                *
      Lynn K. Geurin                                                   37,169 (4)                *
      Brian K. Murray                                                  70,185 (5)                *
      William Robertson                                                 5,844 (6)                *
      Barry S. Shein                                                    4,000                    *
      William H. West, Jr.                                              8,930                    *
      Wallace R. Weitz & Co. (7)                                    4,152,850                   9.02%

      All Directors and executive officers as a group               1,885,385                   4.10%

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*     Less than 1% of the outstanding shares of common stock.

(1)  Includes 600 shares of common stock owned of record by such person's
     children.
(2)  Includes 28,660 shares of common stock owned of record by such person's
     children and spouse.
(3)  Includes 2,330 shares of common stock owned of record by such person's
     spouse.
(4)  Includes 2,000 shares of common stock owned of record by such person's
     spouse.
(5)  Includes 7,178 shares of common stock owned of record by such person's
     children.
(6)  Includes 3,460 shares of common stock owned of record by such person's
     children and spouse.
(7)  Address:  1125 South  103rd  Street,  Suite 600,  Omaha,  NE  68124-6008.
     Shares are held with sole power to dispose thereof.







            PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION
                        TO EFFECT THE REVERSE STOCK SPLIT


General

     The Board of Directors  has declared it advisable  and in the best interest
of the Company and its  stockholders to amend the Articles of  Incorporation  to
effect a  one-for-four  reverse stock split (the  "Reverse  Stock Split") of the
issued  and  outstanding  shares of common  stock.  A copy of the  Amendment  is
attached as Appendix A.

     If the  Amendment  is  approved  by the  stockholders,  each four shares of
common stock  outstanding  at the close of business on the effective date of the
Amendment (the "Effective Time") will be converted  automatically into one share
of common stock.  To avoid the  existence of fractional  shares of common stock,
stockholders  who would  otherwise be entitled to receive  fractional  shares of
common stock equal to one-half or more will  receive one whole share.  No shares
or scrip  shall be  issued to  holders  in  respect  of any  fraction  less than
one-half.  The  Effective  Time is  anticipated  to be as  soon  as  practicable
following the date of the Special Meeting.



Purposes of Reverse Stock Split

     The Board of Directors believes that the Reverse Stock Split will cause the
stock price of the common stock, currently below $5.00, to be more appropriately
aligned with the  Company's  peers in the finance  industry.  The Reverse  Stock
Split  should  cause the common  stock to be more  attractive  to the  financial
community and lower trading costs for the investing public. Further, the Reverse
Stock Split will reduce administrative costs for the Company.

     Many  institutional  and other  investors  look upon  stock  trading at low
prices as  unduly  speculative  in nature  and,  as a matter  of  policy,  avoid
investment in such stocks. Accordingly, the Board of Directors believes that the
current  per  share  price  of  the  common  stock  may  reduce  the   effective
marketability of the shares because of the reluctance of many leading  brokerage
firms to recommend low priced stock to their clients. Further, various brokerage
house policies and practices tend to discourage  individual brokers from dealing
in low  priced  stocks.  Some of those  policies  and  practices  pertain to the
payment of brokers' commissions and to time-consuming  procedures which function
to make the  handling  of low priced  stocks  unattractive  to  brokers  from an
economic  standpoint.  Additionally,  the structure of trading  commissions also
tends to have an adverse  impact upon  holders of low priced  stock  because the
brokerage commission on a sale of low priced stock generally represents a higher
percentage of the sales price than the commission on higher priced issues.

     The Board of Directors  believes that the shares of common stock will, as a
result of the Reverse Stock Split,  trade at higher prices than those which have
prevailed recently.  There can be no assurance,  however,  that such increase in
the market value will occur or, if such an increase  occurs,  that it will equal
or exceed the direct  arithmetical result of the Reverse Stock Split since there
are numerous factors and contingencies which would effect such value,  including
the  status  of the  market  for the  shares of  common  stock at the time,  the
Company's  reported  results of operations in future fiscal  periods and general
stock market conditions. Therefore, there can be no assurance that the shares of
common stock will not,  despite the Reverse  Stock Split,  trade at prices which
are less than the arithmetical equivalent share price resulting from the Reverse
Stock Split.


Effects of Reverse Stock Split

     If the Amendment is implemented the number of outstanding  shares of common
stock will be reduced  from  approximately  46,036,949  shares to  approximately
11,509,237   shares.   The   Amendment   would  not  affect  any   stockholder's
proportionate  equity  interest  in the  Company,  except for minor  differences
resulting from the rounding of fractional  shares.  The Amendment also would not
affect the rights,  preferences privileges or priorities of any of the Company's
outstanding  classes  and  series of stock.  The  Amendment  will not affect the
registration of the common stock under the Securities  Exchange Act of 1934. The
Company intends to apply for listing of the post-conversion  common stock on the
New York Stock Exchange (the "NYSE").  All fees incurred in connection  with the
implementation of the proposed one-for-four Reverse Stock Split will be borne by
the Company.

     The Company also has approximately  10,802,404 shares reserved for issuance
upon  exercise  of  stock   appreciation   rights  ("SARs")  and  conversion  of
outstanding shares of Preferred Stock, leaving 43,160,647 shares of common stock
authorized, but unissued and not reserved for any particular purpose. All of the
43,160,647  shares of common stock  authorized but unissued and not reserved for
future  issuance  would be  subject  to  issuance,  from  time to  time,  in the
discretion of the Board of Directors for any proper  corporate  purpose  without
further  action  by  stockholders  unless  otherwise  required  by law or  other
applicable rules and regulations.

     The number of shares subject to stock appreciation  rights ("SARs") granted
to directors,  officers and employees of the Company under the Company's various
stock plans and the strike price for such SARs will be proportionately  adjusted
for the Reverse Stock Split. The number of shares of common stock authorized for
the stock plans will also be proportionately adjusted.

     The number of shares of common stock into which the  outstanding  shares of
Series A Cumulative Convertible Preferred Stock, Series B Cumulative Convertible
Preferred  Stock and  Series C  Cumulative  Convertible  Preferred  Stock may be
converted will also be  appropriately  adjusted to account for the Reverse Stock
Split  pursuant to the  applicable  terms of each series of Preferred  Stock set
forth in the Company's Articles of Incorporation, as amended.

     The Reverse  Stock Split may leave  certain  stockholders  with one or more
"odd lots" of common  stock,  or stock in amounts of less than 100 shares.  Such
odd lots may be more difficult to sell or may require greater  transaction costs
per share to sell than shares in even  multiples of 100. Last year,  the Company
concluded,  and will consider  implementing in the future, an odd-lot repurchase
program to allow  shareholders  owning  less than 100 shares of common  stock to
sell their odd-lot holdings.

     Although  the  Board of  Directors  believes  as of the date of this  Proxy
Statement  that the Reverse  Stock Split is  advisable,  the Reverse Stock Split
Proposal may be  abandoned by the Board of Directors at any time before,  during
or after the Special  Meeting and prior to filing the  amendment to the Articles
of Incorporation with the State Corporation Commission.


Exchange of Stock Certificates and Elimination of Fractional Share Interests

     The Reverse Stock Split will occur at the Effective Time without any action
on the part of the  Company's  stockholders  and  without  regard to the date or
dates  certificates   formerly   representing   shares  of  common  stock  ("old
certificates")  are physically  surrendered for  certificates  representing  the
number of shares of common stock such  stockholders are entitled to receive as a
result of the Reverse Stock Split ("new certificates").

     As soon as  practicable  after the Effective  Time, the Company will send a
letter of  transmittal  to each  stockholder of record at the Effective Time for
use in  transmitting  old  certificates to the Company's  transfer agent,  First
Union National Bank,  Shareholder  Services Group,  1525 West W.T. Harris Blvd.,
3C3, Charlotte, NC 28288-1153, (800) 829-8432 (the "Exchange Agent"). The letter
of transmittal  will contain  instructions for the surrender of old certificates
to the Exchange Agent in exchange for new  certificates  representing the number
of whole  shares of new common  stock into which  their  shares of common  stock
represented  by the old  certificates  have  been  converted  as a result of the
Reverse Stock Split.  Stockholders should not send their old certificates to the
Exchange  Agent  until  they  have  received  the  letter  of  transmittal.  Old
certificates  not presented for  surrender as soon as is  practicable  after the
letter of  transmittal  is sent shall be exchanged for new  certificates  at the
first time they are otherwise presented for transfer. Until so surrendered, each
current  certificate  representing shares of common stock will be deemed for all
corporate  purposes  after the  Effective  Date to evidence  ownership of common
stock in the appropriately reduced whole number of shares.


Federal Income Tax Consequences

     The following is a summary of the material  anticipated  federal income tax
consequences  of the Reverse Stock Split to  stockholders  of the Company.  This
summary is based on the federal  income tax laws now in effect and as  currently
interpreted;  it does not take into  account  possible  changes  in such laws or
interpretations,  including amendments to applicable  statutes,  regulations and
proposed regulations or changes in judicial or administrative  rulings,  some of
which  may have  retroactive  effect.  This  summary  is  provided  for  general
information  only and does not purport to address  all  aspects of the  possible
federal income tax  consequences  of the Reverse Stock Split and is not intended
as tax advice to any person. In particular,  and without limiting the foregoing,
this  summary  does  not  consider  the  federal  income  tax   consequences  to
stockholders   of  the   Company  in  light  of  their   individual   investment
circumstances  or to  holders  subject to special  treatment  under the  federal
income tax laws (for example,  life insurance  companies,  regulated  investment
companies and foreign  taxpayers).  The summary does not address any consequence
of the Reverse Stock Split under any state, local, or foreign tax laws.

     No ruling  from the  Internal  Revenue  Service  ("Service")  or opinion of
counsel will be obtained  regarding the federal income tax  consequences  to the
stockholders of the Company as a result of the Reverse Stock Split. Accordingly,
each  stockholder is encouraged to consult his or her tax advisor  regarding the
specific tax  consequences  of the  proposed  transaction  to such  stockholder,
including the  application  and effect of state,  local,  and foreign income and
other tax laws.

     The  Company  believes  that the  Reverse  Stock  Split would be a tax-free
recapitalization to the Company and its stockholders. If the Reverse Stock Split
qualifies  as a  recapitalization  under  Section 368  (a)(1)(E) of the Internal
Revenue Code of 1986, as amended, a stockholder of the Company who exchanges his
or her common stock solely for new common stock should recognize no gain or loss
for federal income tax purposes.  A stockholder's  aggregate tax basis in his or
her shares of new common stock  received from the Company  should be the same as
his or her  aggregate  tax basis in the common  stock  exchanged  therefor.  The
holding  period of the new common  stock  received  by such  stockholder  should
include  the  period  during  which the common  stock  surrendered  in  exchange
therefor was held, provided all such common stock was held as a capital asset on
the date of the exchange.


Vote Required

     Assuming a quorum is  present,  the  affirmative  vote of the  holders of a
majority of the outstanding shares of common stock of the Company is required to
approve  the  Amendment.  The  presence  in person  or by proxy of  stockholders
entitled  to vote a  majority  of the  outstanding  shares of common  stock will
constitute a quorum.  Shares  represented  by proxy or in person at the meeting,
including  shares  represented  by proxies  that  reflect  abstentions,  will be
counted as present in the determination of a quorum. An abstention will have the
same effect as a vote  "against"  the  Amendment  proposal.  "Broker  non-votes"
(i.e.,  where a broker or nominee  submits a proxy  specifically  indicating the
lack of discretionary authority to vote on a matter) will be treated in the same
manner as abstentions.

     The votes represented by the proxies received will be voted FOR approval of
the  adoption  of  the  proposed   amendment  to  the   Company's   Articles  of
Incorporation,  unless a vote against such approval or to abstain from voting is
specifically indicated on the proxy.

     The Board of  Directors  recommends  a vote FOR the  proposal  to amend the
Articles  of  Incorporation  to effect a  one-for-four  split of the  issued and
outstanding shares of common stock.


                                  OTHER MATTERS

Stockholder Proposals

     Stockholder  proposals  intended  to be  included  in the  Company's  proxy
statement  and form of proxy  relating  to, and to be  presented  at, the Annual
Meeting of  Stockholders  of the  Company to be held in 2000 must be received by
the Company on or before  December 31, 1999. Any proposals of stockholders to be
presented at the 2000 Annual  Meeting  which are  delivered to the Company later
than March 16, 2000 will be voted by the proxy holders  designated  for the 2000
Annual Meeting in their discretion.


Incorporation by Reference

     This Proxy Statement incorporates by reference certain financial statements
and other information filed with the SEC from (i) the Company's Annual Report on
Form 10-K for the year ended  December  31, 1998,  filed on March 31,  1999,  as
amended by Form 10-K/A filed on April 15, 1999; and (ii) the Company's Quarterly
Report on Form 10-Q for the period ended March 31, 1999,  filed on May 17, 1999.
A copy of the  Company's  Annual  Report on Form 10-K and Form 10-K/A and/or the
Company's  Quarterly  Report on Form 10-Q will be  furnished by first class mail
without  charge upon the oral or written  request to the Company's  Secretary at
the address or telephone number shown in the front of this Proxy Statement.



                                    By the order of the Board of Directors




                                    Thomas H. Potts
                                    President

June 30, 1999






                                   APPENDIX A

               PROPOSED AMENDMENT TO THE ARTICLES OF INCORPORATION

     The first  paragraph  of Article  III (as  amended  May 5,  1997)  shall be
deleted and in place thereof shall be the following:


Common Stock

     The number of shares of Common  Stock that the  Corporation  shall have the
authority  to issue  shall be  100,000,000  shares of Common  Stock with the par
value of $.01 each.  Effective at the close of business on the effective date of
this amendment (the "Effective Time"), the filing of this amendment shall effect
a reverse  stock split (the "Reverse  Stock Split")  pursuant to which each four
(4) issued and outstanding shares of Common Stock of the Corporation,  par value
of $.01 per share, shall be combined into one (1) validly issued, fully paid and
nonassessable  share of Common Stock of the  Corporation,  par value of $.01 per
share.  Each stock  certificate  that prior to the  Effective  Time  represented
shares of Common Stock shall, following the Effective Time, represent the number
of shares into which the shares of Common Stock  represented by such certificate
shall be combined.

     No  fractional  shares or scrip for  fractional  shares  shall be issued by
reason of this Reverse  Stock Split.  In cases in which the Reverse  Stock Split
would  otherwise  result in any  shareholder  holding a  fractional  share,  the
Corporation  shall  issue one share for each  fractional  share of Common  Stock
equal to or greater  than  one-half and no shares for each  fractional  share of
Common Stock less than one-half.

     After the Effective  Time,  each holder of record of shares of Common Stock
shall  be  entitled  to  receive,  upon  the  surrender  of the  certificate  or
certificates  representing  the  shares  of  Common  Stock  held by such  holder
immediately  prior to the Effective  Time at the office of the transfer agent of
the Corporation in such form and  accompanied by such documents,  if any, as may
be prescribed by the transfer  agent of the  Corporation,  a new  certificate or
certificates  representing  the  number of shares of Common  Stock of which such
record owner is entitled  after giving  effect to the Reverse  Stock Split.  The
Reverse Stock Split will be deemed to occur at the Effective Time, regardless of
when the certificates are surrendered.