Housing was at the center of the financial crisis that threw the US economy into deep recession in late 2007.
While signs of stabilization are appearing, home foreclosures are still rising in much of the country.
Obama said he is designating $1.5 billion from the Troubled Asset Relief Program to fund programs at local housing finance agencies in California, Florida, Nevada, Arizona, and Michigan, which have seen home prices decline more than 20 percent from their peaks.
"This fund's going to help out-of-work homeowners avoid preventable foreclosures," Obama told a town hall-style meeting at a school near Las Vegas.
"It will help homeowners who owe more than their homes are worth find a way to pay their mortgages that works for both the borrowers and the lenders alike." Nevada is still struggling from the home market crash, and Obama's choice to make the announcement there was no accident.
The president is trying to boost Reid, a Nevada Democrat who trails potential Republican opponents by double digits in opinion polls ahead of November elections that could change the balance of power in Congress.
Reid has helped push Obama's agenda to boost the economy, overhaul the US healthcare system and fight climate change, but Republican critics say he has neglected his home state while working on the national stage.
After a prolonged boom that began in the late 1990s during which banks loosened lending standards and took on excessive risk, the sector suddenly lost steam and prices deflated abruptly after 2006.
While falling values have left many mortgage-holders with homes worth less than the loans on them, soaring unemployment has led to even more mortgage defaults.
There has been some recent positive news, notably a report this week showing that construction starts on new homes hit a six-month high in January. Over the past 12 months through January, housing starts were up 21 percent, a sign that underlying demand was beginning to firm again.
A senior Obama administration official said the administration knew many people were still hurting.
"We are extremely cognizant of just how difficult the housing situation remains," the official told reporters.
"But (we are) very relieved that we are in a dramatically different place today where we have very significant stabilization in prices across most of the country." The $1.5 billion would be distributed to state agencies based on which states were suffering the most. Money could go to programs to help unemployed homeowners, for example, or borrowers who owe more on their houses than they are worth.
The official said the program came on top of the Treasury Department's recent $23 billion program for all 50 state Housing Finance Agencies.
