Dynex Capital, Inc. Reaches Agreement-in-Principle to Settle Class Action Securities Litigation and Announces CMBS Refinance

Dynex Capital, Inc. (NYSE: DX) announced today that it has entered into a memorandum of understanding reflecting an agreement in principle to settle all claims asserted against all defendants of the class action lawsuit captioned In re Dynex Capital, Inc. Securities Litigation, Case No. 05 Civ. 1897 (HB) (S.D.N.Y.) now pending in the United States District Court for the Southern District of New York (the “Court”). The lawsuit was filed by the Teamsters Local 445 Freight Division Pension Fund in February 2005 and alleged violations of the federal securities laws on behalf of a class of purchasers of MERIT Series 12-1 and MERIT Series 13 securitization financing bonds between February 2000 and May 2004. The memorandum of understanding sets forth terms of a proposed settlement whereby the Company would pay $7.5 million into an escrow account following the negotiation and execution of a definitive settlement agreement and preliminary approval by the Court. The disbursement of the escrowed payment will be subject to notice to the class and final approval by the Court, in addition to any other conditions contained in the definitive settlement agreement. The Company continues to deny that it violated any federal securities laws and has agreed in principle to this settlement solely to eliminate the expense, burden and uncertainty of the litigation.

The Company had not provided reserves for this litigation and accordingly the proposed settlement amount will be included as an expense in the Company's financial statements for the third quarter of 2011. The proposed settlement amount will reduce earnings per share for the third quarter of 2011 by approximately $0.186 per common share. The proposed settlement does not impact the Company's previously declared dividend for the third quarter of $0.27 per common share.

“This settlement will resolve legacy litigation so that we may continue to focus on the long-term future of our business,” said Thomas B. Akin, Chairman and Chief Executive Officer. “It will settle a significant uncertainty and does not materially impact the core operating or future earnings potential of the Company.”

Separately the Company announced that it expects to exercise its option to refinance in October 2011 approximately $74.2 million in collateralized financings with repurchase agreement financing in order to take advantage of the lower interest rate environment and reduce its overall borrowing costs. Approximately $23.7 million in the collateralized financings is a securitization financing bond issued by the Company in 1998 and which finances commercial mortgage loans included in the Company's financial statements. The bond had recently been upgraded to ‘AA' from ‘A+' reflecting the high quality of the associated loan collateral. Overall the refinancing is expected to save the Company approximately $2.0 million annually in interest costs based on current anticipated market conditions and repurchase agreement financing terms (which are subject to change) and approximately $600,000 annually in amortization expense. The Company will take a one time non-cash charge of $2.0 million on the redemption of the securitization financing bond related to remaining unamortized discount recorded on the bond as of September 30, 2011. Consummation of the refinance is dependent on several factors, including, but not limited to, interest rates, the Company obtaining repurchase agreement financing on terms and conditions acceptable to the Company and the condition of repurchase financing markets generally.

Dynex Capital, Inc. is an internally managed real estate investment trust, or REIT, which invests in mortgage assets on a leveraged basis. The Company invests in Agency and non-Agency RMBS and CMBS. The Company also has investments in securitized single-family residential and commercial mortgage loans originated by the Company from 1992 to 1998. Additional information about Dynex Capital, Inc. is available at www.dynexcapital.com.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding the business of Dynex Capital, Inc. that are not historical facts are "forward-looking statements" that involve risks and uncertainties, including statements regarding the Memorandum of Understanding and the proposed settlement of the Teamsters class action litigation, future financing strategies and potential refinancing in October 2011 of the collateralized financings, and future operating performance and results including the impact of the proposed Teamster litigation settlement and proposed October 2011 refinancing transaction. For a discussion of these risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report on Form 10-K and other reports filed with the Securities and Exchange Commission.