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                              ADVISORY AGREEMENT


     THIS ADVISORY AGREEMENT ("Agreement") is made this 3rd day of December,
1996 by and between CHEVY CHASE PREFERRED CAPITAL CORPORATION, a Maryland
corporation (the "Company"), and CHEVY CHASE BANK, F.S.B., a federally chartered
and federally insured stock savings bank (the "Advisor").  Capitalized terms
used herein shall have the meanings set forth in Section 1 of this Agreement.

     WHEREAS, the Company intends to qualify as a "real estate investment trust"
("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"); and

     WHEREAS, the Company desires to avail itself of the experience and
assistance of the Advisor and to have the Advisor undertake, on the Company's
behalf, the duties and responsibilities hereinafter set forth, subject to the
control and supervision of the Board of Directors of the Company (the "Board of
Directors") as provided for herein; and

     WHEREAS, the Advisor desires to render such services to the Company subject
to the control and supervision of the Board of Directors, on the terms and
conditions hereinafter set forth.

NOW THEREFORE, the parties hereto agree as follows:

     SECTION 1.  DEFINITIONS.

     As used herein, the following terms shall have the respective meanings set
forth below:

     "Advisor" has the meaning set forth in the forepart of this Agreement.

     "Advisor Termination Date" means the date on which this Agreement
terminates.

     "Agreement" means this Advisory Agreement, as amended, modified and
supplemented from time  to time.

     "Board of Directors" has the meaning set forth in the forepart of this
Agreement.

     "Code" has the meaning set forth in the forepart of this Agreement.

     "Company" has the meaning set forth in the forepart of this Agreement.

     "Independent Directors" means the members of the Board of Directors who are
not current officers or employees of the Company or current directors, employees
or officers of the Advisor or any affiliate of the Advisor.
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     "Operating Expenses" for any period means all of the operating expenses of
the Company (with the exception of those expenses to be borne by the Advisor in
accordance with Section 4 hereof), including without limitation the following:

     (a) interest, taxes and other expenses incurred in connection with the real
estate mortgage assets of the Company;

     (b) expenses related to the officers, directors and employees of the
Company, including without limitation any fees or expenses of the directors;

     (c) fees and expenses payable to accountants, appraisers, auditors,
consultants, attorneys, collection and paying agents and all other Persons who
contract with or are retained by the Company or by the Advisor on behalf of the
Company;

     (d) legal and other expenses incurred in connection with advice concerning,
obtaining or maintaining the Company's status as a REIT, the determination of
the Company's taxable income, any formal or informal administrative action or
legal proceedings which involve a challenge to the REIT status of the Company or
any claim that the activities of the Company, any member of the Board of
Directors or any officer were improper;

     (e) expenses relating to communications and reports to stockholders of the
Company, including without limitation the costs of preparing, printing,
duplicating and mailing the certificates for the stock of the Company, proxy
solicitation materials and reports to stockholders, and the costs of arranging
meetings of stockholders;

     (f) the costs of insurance described in Section 2 hereof, including
directors and officers liability insurance covering the directors and officers
of the Company;

     (g) expenses relating to the acquisition, disposition and ownership of real
estate mortgage assets, including, without limitation and to the extent not paid
by others, legal fees and other expenses for professional services and fees;

     (h) expenses connected with the payments of dividends or interest or
distributions in cash or any other form made or caused to be made by the Board
of Directors to the stockholders of the Company;

     (i) expenses connected with any office or office facilities maintained by
the Company separate from the office of the Advisor, including without
limitation rent, telephone, utilities, office furniture and equipment and
machinery; and

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     (j) other miscellaneous expenses of the Company which are not expenses of
the Advisor under Section 4 hereof.

     "Person" means and includes individuals, corporations, limited
partnerships, general partnerships, joint stock companies or associations,
limited liability companies, joint ventures, associations, consortia, companies,
trusts, banks, trust companies, land trusts, common law trusts, business trusts
or other entities, governments and agencies and political subdivisions thereof.

     "REIT" has the meaning set forth in the forepart of this Agreement.

     SECTION 2.  DUTIES OF THE ADVISOR.

     The Advisor shall consult with the Board of Directors and the officers of
the Company and shall, at the request of the Board of Directors and/or the
officers of the Company, furnish advice and recommendations with respect to all
aspects of the business and affairs of the Company.  Subject to the control and
discretion and at the request of the Board of Directors, the Advisor shall:



     (a) administer the day-to-day operations and affairs of the Company,
including without limitation the performance or supervision of the functions
described in this Section 2;

     (b) monitor the credit quality of the real estate mortgage assets held by
the Company;

     (c) advise the Company with respect to the acquisition, management,
financing and disposition of the Company's real estate mortgage assets;

     (d) represent the Company in its day-to-day dealings with Persons with whom
the Company interacts, including without limitation stockholders of the Company,
the transfer agent of the Company, consultants, accountants, attorneys,
servicers of the Company's mortgage loans, custodians, insurers and banks;

     (e) establish and provide necessary services for the Company, including
executive, administrative, accounting, stockholder relations, secretarial,
recordkeeping, copying, telephone, mailing and distribution facilities;

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     (f) provide the Company with office space, conference room facilities,
office equipment and personnel necessary for the services to be performed by the
Advisor hereunder;

     (g) arrange, schedule and coordinate the regular and special meetings of
the Board of Directors required for the conduct of the affairs of the Company or
for timely action on any matters the Company is required to act upon and
implement all decisions of the Board of Directors, unless otherwise instructed,
with regard to the Company and its assets;

     (h) maintain communications and relations with the stockholders of the
Company, including, but not limited to, responding to inquiries, proxy
solicitations, providing reports to stockholders and arranging and coordinating
all meetings of stockholders;

     (i) arrange for the investment and management of any short-term investments
of the Company;

     (j) arrange for the services of third parties to collect and distribute
funds of the Company and to perform such functions as the Board of Directors
shall from time to time require;

     (k) monitor and supervise the performance of all parties who have contracts
to perform services for the Company, provided that the Advisor shall have no
duty to assume the obligations or guarantee the performance of such parties
under such contracts;

     (l) establish and maintain such bank accounts in the name of the Company as
may be required by the Company and approved by the Board of Directors and ensure
that all funds collected by the Advisor in the name or on behalf of the Company
shall be held in trust and shall not be commingled with the Advisor's own funds
or accounts;

     (m) make payment on behalf of the Company of all Operating Expenses;

     (n) arrange for the execution and delivery of such documents and
instruments by the officers of the Company as may be required in order to
perform the functions herein described and to take any other required action
contemplated by the terms of this Agreement;

     (o) arrange for insurance for the Company, including liability insurance,
errors and omissions policies and officers and directors policies, which shall
cover and insure the Company, members of the Board of Directors and the officers
of the Company in amounts and with deductibles and insurers approved by the
Board of Directors;

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     (p) maintain proper books and records of the Company's affairs and furnish
or cause to be furnished to the Board of Directors such periodic reports and
accounting information as may be required from time to time by the Board of
Directors, including, but not limited to, quarterly reports of all income,
expenses and distributions of the Company;

     (q) consult and work with legal counsel for the Company in implementing
Company decisions and undertaking measures consistent with all pertinent
Federal, state and local laws and rules or regulations of governmental or quasi-
governmental agencies, including, but not limited to, Federal and state
securities laws, the Code, as it relates to the Company's qualification as a
REIT, and the regulations promulgated under each of the foregoing;

     (r) consult and work with accountants for the Company in connection with
the preparation of financial statements, annual reports and tax returns;

     (s) arrange for an annual audit of the books and records of the Company by
the accounting firm designated for such purposes by the Board of Directors;

     (t) prepare and distribute in consultation with the accountants for the
Company, annual reports to stockholders which will contain audited financial
statements;

     (u) furnish reports to the Board of Directors and provide research,
economical and statistical data in connection with the Company's investments;
and

     (n) as reasonably requested by the Company, make reports to the Company of
its performance of the foregoing services and furnish advice and recommendations
with respect to other aspects of the business of the Company.

     SECTION 3.  COMPENSATION OF THE ADVISOR.

     The Company shall pay to the Advisor, for services rendered by the Advisor
hereunder, an advisory fee equal to Two Hundred Thousand Dollars ($200,000.00)
per year, payable in equal quarterly installments.

     SECTION 4.  EXPENSES OF THE ADVISOR.


     (a) Without regard to the compensation received pursuant to Section 3
hereof, the Advisor shall bear the following expenses:

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          (i) employment expenses of the personnel employed by the Advisor,
     including without limitation salaries, wages, payroll taxes and the cost of
     employee benefit plans; and

          (ii) rent, telephone equipment, utilities, office furniture and
     equipment and machinery and other office expenses of the Advisor incurred
     in connection with the maintenance of any office facility of the Advisor.

     (a) The Company shall reimburse the Advisor within 30 days of a written
request by the Advisor for any Operating Expenses paid or incurred by the
Advisor on behalf of the Company.

     SECTION 5.  RECORDS.

     The Advisor shall maintain appropriate books of account and records
relating to services performed hereunder, and such books of account and records
shall be accessible for inspection by the Board of Directors and representatives
of the Company at all times.

     SECTION 6.  REIT QUALIFICATION AND COMPLIANCE.

     The Advisor shall consult and work with the Company's legal counsel in
maintaining the Company's qualification as a REIT.  Notwithstanding any other
provisions of this Agreement to the contrary, the Advisor shall refrain from any
action which, in its reasonable judgment or in the judgment of the Board of
Directors (of which the Advisor has received written notice), would adversely
affect the qualification of the Company as a REIT or which would violate any
law, rule or regulation of any governmental body or agency having jurisdiction
over the Company or its securities, or which would otherwise not be permitted by
the articles of incorporation or by-laws of the Company.  Furthermore, the
Advisor shall take any action which, in its judgment or the judgment of the
Board of Directors (of which the Advisor has received written notice), may be
necessary to maintain the qualification of the Company as a REIT or prevent the
violation of any law or regulation of any governmental body or agency having
jurisdiction over the Company or its securities.

     SECTION 7.  TERM; TERMINATION.

     This Agreement shall be in full force and effect for a term beginning on
the date hereof with an initial term of three years, and will be renewed
automatically for additional one-year periods unless the Company delivers a
notice of nonrenewal to the Advisor not less than 60 days prior to the
expiration of the initial term of this Agreement or 60 days prior to the
expiration of any renewal term.  Notwithstanding the foregoing, at any time
after the initial term, the Company may terminate this Agreement at any time
upon 60 days' prior

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written notice; provided, however, that as long as any shares of the Company's
10 3/8% Noncumulative Exchangeable Preferred Stock, Series A, par value $5.00
per share, remain outstanding, any decision by the Company either not to renew
this Agreement or to terminate this Agreement must be approved by a majority of
the Board of Directors, as well as by a majority of the Independent Directors.

     SECTION 8.  OTHER ACTIVITIES OF THE ADVISOR.


     (a) Nothing herein contained shall prevent the Advisor, an affiliate of the
Advisor or an officer, director, employee or stockholder of the Advisor from
engaging in any activity, including without limitation originating, purchasing
and managing real estate mortgage assets, rendering of services and investment
advice with respect to real estate investment opportunities to any other Person
(including other REITs) and managing other investments (including the
investments of the Advisor and its affiliates).

     (b) Officers, directors, employees, stockholders and agents of the Advisor
or of any affiliate of the Advisor may serve as officers, directors, employee or
agents of the Company, but shall receive no compensation (other than
reimbursement for expenses) from the Company for such service.

     SECTION 9.  BINDING EFFECT; ASSIGNMENT.

     This Agreement shall inure to the benefit of and shall be binding upon the
parties hereto and their respective successors and assigns.  Neither party may
assign this Agreement or any of its respective rights hereunder (other than an
assignment to a successor organization which acquires substantially all of the
property of such party or, in the case of the Advisor, to an affiliate of the
Advisor) without the prior written consent of the other party to this Agreement.

     SECTION 10.  SUBCONTRACTING.

     The Advisor may at any time subcontract all or a portion of its obligations
under this Agreement to one or more affiliates of the Advisor that are involved
in the business of managing real estate mortgage assets without the consent of
the Company.  If no affiliate of the Advisor is engaged in the business of
managing real estate mortgage assets, the Advisor may, with the approval of a
majority of the Board of Directors, as well as a majority of the Independent
Directors, subcontract all or a portion of its obligations under this Agreement
to unrelated third parties.  Notwithstanding the foregoing, the Advisor will
not, in connection with subcontracting any of its obligations under this
Agreement, be discharged or relieved in any respect from its obligations under
this Agreement.

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     SECTION 11.  LIABILITY AND INDEMNITY OF THE ADVISOR.

     The Advisor assumes no responsibilities under this Agreement other than to
perform the services called for hereunder in good faith.  Neither the Advisor
nor any of its affiliates, stockholders, directors, officers or employees will
have any liability to the Company, stockholders of the Company or others except
by reason of acts or omissions constituting gross negligence or willful breach
of any of the Advisor's material obligations under this Agreement.  The Company
shall indemnify and reimburse (if necessary) the Advisor, its stockholders,
directors, officers, employees and agents for any and all expenses (including
without limitation attorneys' fees and expenses), losses, damages, liabilities,
demands and charges of any nature whatsoever in respect of or arising from any
acts or omissions by the Advisor pursuant to this Agreement, provided that the
conduct against which the claim is made was determined by such Person, in good
faith, to be in the best interests of the Company and was not the result of
gross negligence by such Person or willful breach of any of such Person's
material obligations by such Person.  The Advisor agrees that any such
indemnification is recoverable only from the assets of the Company and not from
the stockholders.

     SECTION 12.  ACTION UPON NOTICE OF NON-RENEWAL OR TERMINATION.

     Forthwith upon giving of notice of non-renewal of this Agreement by the
Company or of termination of this Agreement by the Company, the Advisor shall
not be entitled to compensation after the Advisor Termination Date for further
services under this Agreement, but shall be paid all compensation accruing to
the Advisor Termination Date and shall be reimbursed for all expenses of the
Company paid or incurred by the Advisor as of the Advisor Termination Date which
are reimbursable by the Company under this Agreement.  The Advisor shall
promptly after the Advisor Termination Date:

          (i) deliver to the Company all assets and documents of the Company
     then in the custody of the Advisor; and

          (ii) cooperate with the Company and take all reasonable steps
     requested to assist the Board of Directors in making an orderly transfer of
     the administrative functions of the Company.

     SECTION 13.  NO JOINT VENTURE OR PARTNERSHIP.

     Nothing in this Agreement shall be deemed to create a joint venture or
partnership between the parties, whether for purposes of taxation or otherwise.

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     SECTION 14.  NOTICES.

     Unless expressly provided otherwise herein, all notices, requests, demands
and other communications required or permitted under this Agreement shall be in
writing and shall be made by hand delivery, certified mail, overnight courier
service, telex or telecopier.  Any notice shall be duly addressed to the parties
as follows:

     If to the Company:

          Chevy Chase Preferred Capital Corporation
          8401 Connecticut Avenue
          Chevy Chase, Maryland  20815
          Telephone:  (301) 986-7000
          Telecopy:  (301) 986-7401

          Attention:  Stephen R. Halpin, Jr.

     If to the Advisor:

          Chevy Chase Bank, F.S.B.
          8401 Connecticut Avenue
          Chevy Chase, Maryland  20815
          Telephone:  (301) 986-7000
          Telecopy:  (301) 986-7401

          Attention:  Stephen R. Halpin, Jr.

     Either party may alter the address to which communications or copies are to
be sent by giving notice of such change of address in conformity with the
provisions of this Section 14 for the giving of notice.

     SECTION 15.  SEVERABILITY.

     If any term or provision of this Agreement or the application thereof with
respect to any Person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Agreement, or the application of that term
or provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Agreement shall be valid and be enforced to the fullest extent
permitted by law.

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     SECTION 16.  GOVERNING LAW.

     This Agreement and all questions relating to its validity, interpretation,
performance and enforcement shall be governed by and construed, interpreted and
enforced in accordance with the laws of the State of Maryland, notwithstanding
any Maryland choice of law rules that would apply the substantive law of any
other jurisdiction.

     SECTION 17.  AMENDMENTS.

     This Agreement shall not be amended, changed, modified, terminated or
discharged in whole or in part except by an instrument in writing signed by both
parties hereto or their respective successors or assigns, or otherwise as
provided herein.

     SECTION 18.  HEADINGS.

     The section headings herein have been inserted for convenience of reference
only and shall not be construed to affect the meaning, construction or effect of
this Agreement.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized as of the date first above
written.


                         CHEVY CHASE PREFERRED CAPITAL CORPORATION


                         By:  Stephen R. Halpin, Jr.
                              Name: Stephen R. Halpin, Jr.
                              Title:  Executive Vice President, Chief Financial
                                      Officer and Treasurer


                         CHEVY CHASE BANK, F.S.B.


                         By:  Joel A. Friedman
                              Name: Joel A. Friedman
                              Title:  Senior Vice President and Controller

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