The virus-induced recession has mortgage lenders quickly steering away from traditional clients, as fears abound that lost income could result in a massive wave of mortgage defaults. So that's why Wells Fargo is tightening mortgage standards for new clients and laying off thousands of jobs. 

Sources told CNBC that Wells Fargo is now requesting new clients who want to refinance jumbo mortgages to have at least a $1 million balance, up from the previous threshold of $250,000. 

"The change came in a July 1 overhaul of lending guidelines that broadly lowered barriers to the product for existing customers, while making it far harder for new ones to qualify," said the source.

Wells Fargo, the largest U.S. mortgage lender, has been pressured by the economic downturn and a Federal Reserve cap on its balance sheet to rein in operations. The bank hasn't been able to expand its balance sheet due to regulatory constraints tied to scandals in 2016. 

The bank reduced its footprint in the jumbo loan market in April. Back then, jumbos yielded 3.68%, 30 bps higher than the average conventional rate. The reason? Well, banks tightened lending standards and shunned making any new jumbo loans because they weren't government guaranteed. 

Stanley Middleman, chief executive officer of Freedom Mortgage Corp., explained the pullback in jumbo loan making in April: 

"Much of this pullback is because investors who'd normally buy these loans no longer want them. Whether the assets are good or not good is irrelevant because there's no liquidity to buy them," said Middleman.

Wells Fargo is by far one of the largest jumbo loan holders, producing about $70 billion of the mortgages last year. 

Besides tightening lending standards, the bank also announced it's preparing to cut thousands of jobs later this year - as the industry is set for mass layoffs. 

"Pressure to dramatically reduce costs is coming to a head inside the bank, prompting executives to draft plans that may ultimately eliminate tens of thousands of positions, people with knowledge of the confidential talks said, asking not to be named. Some analysts predict the lender may post its first quarterly loss in more than a decade next week, when the firm is set to reveal how much it's lowering its dividend following Federal Reserve stress tests," Bloomberg noted.

Shares of Wells Fargo traded down 2.3% on Thursday afternoon. 

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The actions by America's largest mortgage lender suggests the recession ain't over... For more color on what could be next, listen to what Gary Shilling is predicting.