About two weeks ago, Microsoft released the final security update for Windows 7. With the rollout of KB4534310, Microsoft fixed some critical security vulnerabilities but at the same time it also introduced a new bug. Users of Windows 7 are complaining that since the installation of KB4534310, the wallpaper functionality is broken. Stretched wallpapers are no longer displayed, instead users are seeing a black background.
As Windows 7 hit the end of its life cycle on January 14, 2020, it seemed this problem would only be resolved for paid customers, who bought the Extended Security Updates for Windows 7.
However, GHacks reports Microsoft had a change of heart and will push the patch to all Windows 7 users:
We are working on a resolution and will provide an update in an upcoming release, which will be released to all customers running Windows 7 and Windows Server 2008 R2 SP1.
In the meantime, users can resolve the issue by using a different view mode like fill, fit or center. Alternatively, you can use an image editor to manually stretch your background to the correct resolution.