WITNESSETH:

                                                                Exhibit No. 7(b)




                     FIRST AMENDMENT TO CUSTODIAN AGREEMENT

        THIS FIRST AMENDMENT TO CUSTODIAN AGREEMENT (the "Amendment") is
effective as of July 1, 2002 by and among HOMESTEAD FUNDS, INC. ("Company"), a
Maryland corporation, and STATE STREET BANK AND TRUST COMPANY, a Massachusetts
trust company ("State Street").

                                   WITNESSETH:

        WHEREAS, Company and State Street are parties to that certain Custodian
Agreement dated as of September 1, 2000 (the "Agreement); and

        WHEREAS, Company and State Street desire to amend and supplement the
Agreement upon the following terms and conditions;

        NOW THEREFORE, for and in consideration of the mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Company and State Street hereby agree that the
Agreement is amended and supplemented as follows:

1.      The following provision is hereby added to the Agreement:

        "Confidential Information" shall include but not be limited to (a) all
        information disclosed by either Company or State Street to the other
        party. Each party agrees: (a) to hold the other's Confidential
        Information in strict confidence in accordance with the terms of this
        Agreement, (b) not to divulge any such Confidential Information or any
        information derived there from to any third person except as permitted
        hereby, and (c) not to make any use whatsoever at any time of such
        Confidential Information except in connection with the purposes of this
        Agreement. Confidential Information shall not include: (a) information
        that is generally available to the public, through no fault of the
        recipient, or any affiliated party, and without breach of this
        Agreement, (b) information that was already in the possession of the
        recipient, without restriction, prior to any disclosure hereunder, (c)
        information that is or has been lawfully disclosed to the recipient by a
        third party without obligation of confidentiality upon the recipient, or
        (d) information that is developed independently by employees of the
        recipient who have not had access to the Confidential Information
        disclosed hereunder. Nothing herein shall prevent disclosure of
        Confidential Information by either party as required by law or
        regulatory authorities.

        2. This Amendment is intended to modify and amend the Agreement and the
        terms of this Amendment and the Agreement are to be construed to be
        cumulative and not exclusive of each other. Except as provided herein,
        the Agreement is hereby ratified and confirmed and remains in full force
        and effect.

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


                                                   
STATE STREET BANK AND TRUST COMPANY                   HOMESTEAD FUNDS, INC.

By:     /s/Xxxxx Xxxxxxx                              By:     /s/Xxxxx X. Xxxxxx
     ---------------------------------------              ----------------------------------------

Name:   Xxxxx Xxxxxxx                                 Name:   Xxxxx X. Xxxxxx
       -------------------------------------                 -------------------------------------

Title:         Vice President                         Title:         VP, Chief Investment Officer
       -------------------------------------                 -------------------------------------