EXHIBIT A

                      CALIFORNIA INVESTMENT FUND, LLC

January 29, 2001

VIA FACSIMILE AND CERTIFIED MAIL
--------------------------------

The Board of Directors
Dynex Capital, Inc.
4551 Cox Road
Glen Allen, VA  23060

Dear Sirs:

We are in receipt of a letter from Stephen J. Benedetti dated January 26,
2001 purporting to terminate the Agreement and Plan of Merger dated
November 7, 2000 (the "Merger Agreement"), as well as an Escrow Deposit
Request Mr. Benedetti sent to U.S. Trust Company on the same date.

CIF believes that Dynex has no proper basis for terminating the Merger
Agreement. We urge you to promptly rescind your purported termination of
the Merger Agreement. Dynex's decision to rely upon technical details in
purporting to terminate the Merger Agreement, when as Dynex well knows, CIF
has been successfully moving forward toward the consummation of the
transactions contemplated by the Merger Agreement in accordance with its
terms, raises serious questions as to whether Dynex is fulfilling its
obligation to deal with CIF in good faith and whether Dynex is acting in
the best interests of its shareholders.

Dynex's wrongful termination of the Merger Agreement is also interfering
with CIF's ability to document its agreement with the bondholders, and
Dynex must therefore rescind that wrongful termination immediately or be
held accountable for the resulting damages to CIF.

We further request that Dynex take no action inconsistent with the
consummation of the transactions contemplated by the Merger Agreement, in
accordance with the terms of that agreement. CIF reserves all its rights,
including the right to sue to protect its and all other Dynex shareholders'
interests.

Very truly yours,
California Investment Fund, LLC

/s/ Michael R. Kelly

Michael R. Kelly
Managing Member

cc:  Elizabeth R. Hughes, Esq.


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