Westpac is now starting to count the cost of its aggressive pitch for mortgage volumes at the peak of the housing market in 2016.According to the bank's latest trading update published on Monday, credit quality across most of the group's lending portfolios deteriorated in the June quarter led by a significant increase in stressed home borrowers.While the trend is consistent with recent Pillar 3 disclosures from other major banks, the quality of Westpac's A$558 billion mortgage book is starting to fall away at a faster rate.The proportion of home loans not serviced for 90 days or more rose eight basis points during the quarter to 0.9 per cent - the second highest rate of the four major banks behind ANZ.The rise in delinquencies has forced the bank to repossess more homes, with the number of properties claimed from stressed mortgagees up 68 to 550 in the three months to the end of June.Westpac said in a presentation to analysts that most of the repossessions had occurred in WA and Queensland.In their recent Pillar 3 reports, NAB reported a six basis point rise in mortgages 90 days past due to 0.85 per cent while ANZ suffered a rise of 14 bps to 1.14 per cent.Westpac's credit quality could potentially accelerate faster than its peers in the next year because it was the last of the major banks to rein in sales of interest only loans and non-standard mortgages at the peak of the housing boom in 2016.According to sales data published by the AFG mortgage broking network in 2017, Westpac and its regional subsidiaries accounted for 30 per cent of all investor loans originated in the first half of that year.That was more than double the market share of ANZ, which had the second largest share of the market over the same period.Westpac's decision to delay cutting loan volumes until June 2017 might mean it is now more exposed than other banks to slowing economic conditions in Australia.Put simply, it has a disproportionate exposure to the 2016-17 mortgage vintage that is characterised by borrowers who paid top-of-the-cycle prices for residential properties.The increase in loan impairments will add to pressures weighing on Westpac's regulatory CET tier one capital position, which declined 10 bps to 10.5 per cent at the end of June.There is a real prospect that the bank might be forced to cut its final dividend to ensure it meets APRA's "unquestionably strong"  CET 1 requirement of 10.5 per cent from the start of January next year.Westpac stated that its CET 1 ratio would be undermined by a new standard that began to apply to derivative instruments from 1 July. The bank said the standard had eroded its prime capital measure by 20 basis points in the current quarter.A further eight bps is likely to deducted from the CET 1 ratio in October when a new accounting treatment for leasing commitments takes effect.Maintenance of the final dividend is up in the air, with the bank indicating that the capital position would