* Money to go to states including Nevada, California
* Obama's announcement aimed to help Senator Reid (Adds more Obama comments)
By Jeff Mason
HENDERSON, Nev., Feb 19 (Reuters) - President Barack Obama used a campaign push for Senate Majority Leader Harry Reid on Friday to announce a new fund to support homeowners in five states hit hardest by the U.S. housing crisis.
Housing was at the center of the financial crisis that threw the U.S. 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 was 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 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 housing 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 before November elections that could change the balance of power in Congress.
Reid has helped push Obama's agenda to boost the economy, overhaul the U.S. healthcare system and fight climate change, but Republican critics say he has neglected his home state.
Trying to limit his party's losses in November, Obama heaped praise on Reid, saying the former amateur boxer "knows what he believes in and he's willing to fight for it."
After a prolonged boom that began in the late 1990s when 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.
"There is not enough money in the Treasury to stop every foreclosure," Obama said later in a speech to the Las Vegas Chamber of Commerce. "But what government can do is help responsible homeowners stay in their homes."
Obama also used his Nevada trip to push for a healthcare overhaul, saying reform "cannot wait" because it is vital to the economy. He will host a bipartisan summit at the White House on Thursday to try to jump-start his stalled effort.
A senior Obama administration official said the administration knew many homeowners 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. (Additional reporting by David Alexander and Glenn Somerville in Washington; Editing by Peter Cooney)