Under pressure to do more for troubled homeowners, President Obama is expected to announce to-day a $1.5 billion program to help borrowers in the five states hit hardest by the housing crisis. The initiative calls for pumping money into state housing agencies in California, Arizona, Nevada, Florida and Michigan to fund programs to prevent foreclosure for people who are unemployed or who owe more than their homes are worth. Also, the agencies can assist homeowners having trouble securing loan modifications because of second liens, as well as promote affordable housing opportunities.

Obama is scheduled to unveil the initiative, which will be funded with money from the TARP bank bailout, at events in Nevada, which has the highest number of underwater homeowners at 65% and the nation’s second-highest unemployment rate at 13%. The president will be joined by Senate Majority Leader Harry Reid, D-Nev., who is facing a tough relection campaign…..maybe this is all designed to help Mr. Reid’s re-election efforts?

The funds will be allocated based on a formula that takes into account home price declines and unemployment. The agencies’ programs must be approved by the Treasury Department. The move is the administration’s latest attempt to fix its signature foreclosure-prevention effort, the Home Affordable Modification Program, which has been widely panned for not doing enough.

The year-old initiative, which lowers qualified borrowers’ monthly payments to no more than 31% of pre-tax income, has placed more than one million people in trial modifications. But it has given lasting help to only 116,000 homeowners, mainly by lowering their interest rates. Consumer advocates and housing experts for months have called on Obama to expand the program to help the jobless and those suffering steep declines in their home value, two sectors that have received relatively little assistance from the modification effort. Administration officials repeated as recently as Wednesday that they were working on the problem, but that it was a complex issue.

None of this affects the luxury market in New York, except to possibly add further debt to all taxpayers. It also highlights one of the biggest failures of the entire process:  the unwillingness of banks and governments to re-value properties based on market realities. This ostrich-head-in-the-sand mentality is infuriating. But it is good for elections, although that remains to be seen.