By Claudia Parsons

SAN DIEGO (Reuters) - Democratic White House hopeful Barack Obama said on Saturday he was confident "prudent steps" by the U.S. government would stabilize mortgage giants Fannie Mae and Freddie Mac but that it was necessary to see how the situation developed before deciding on what steps to take.

Obama said he had "little doubt we've moved into recession at this point" and that he was committed to ensuring liquidity in the housing market.

In his first comments on market turmoil over Freddie Mac and Fannie Mae, Obama told reporters on a flight to San Diego that he was monitoring the situation of the two institutions closely and that it was of "extraordinary concern."

"We have to understand that those two institutions play a critical role in making sure American home owners can buy a home," the Illinois senator said. "And I have confidence that with some prudent steps by the government, that we'll be able to stabilize the situation."

Obama was cautious when asked whether he would favour a bailout of Freddie Mac and Fannie Mae, whose shares tumbled last week on concerns about their capital due to the mortgage crisis.

"There are a lot of different definitions of what a bailout would look like," he said. "There are issues related to the short-term liquidity, when they borrow money, versus issues related to whether the underlying assets of the two corporations are really unsound.

"I think we need to watch carefully and see how it plays out before we make a decision about which steps need to be taken, if any," he said.

The two companies both said on Friday that their finances were sufficiently sound to withstand the housing crisis.