At least some mortgage industry participants are finding a second life amid the wreckage of the subprime secondary market. Morgan Stanley’s hedge fund platform, FrontPoint Partners, has hired key executives and analysts from troubled scatch-and-dent mortgage operation C-BASS as it looks to launch a new fund that will focus on subprime and Alt-A residential mortgage investment opportunities. According to HedgeWorld, which obtained a leaked internal memo sent on Tuesday, FrontPoint recruited Marc Rosenthal and Noelle Savarese, co-heads of capital markets at C-BASS, to launch the fund. HedgeWorld also reported that the new team includes six analysts from C-BASS with experience analyzing and structuring ABS products. From the story (subscription req’d):

The new FrontPoint fund will focus on ABS products with an emphasis on residential mortgage credit, particularly distressed mortgage opportunities in the near term, according to the memo. The strategy will use a long/short approach with diversification across both products and rating levels in mortgage-backed securities, loan portfolios and other asset-backed securities, the authors of the memo wrote. The focus will primarily be on subprime and Alt-A residential opportunities, but may also be opportunistic in other areas.

C-BASS ran aground in July and August of last year, when it was hit with a slew of margin calls that have threatened to put the former mortgage banking powerhouse out of business. In December, it sold its servicing arm, Litton Loan Servicing, to Goldman Sachs in an effort to free up capital to address liquidity challenges.