We consider a family of McKean--Vlasov equations arising as the large particle limit of a system of interacting particles on the positive half-line with common noise and feedback. Such systems are motivated by structural models for systemic risk with contagion. This contagious interaction is such that when a particle hits zero, the impact is to move all the others toward the origin through a kernel which smooths the impact over time. We study a rescaling of the impact kernel under which it converges to the Dirac delta function so that the interaction happens instantaneously and the limiting singular McKean--Vlasov equation can exhibit jumps. Our approach provides a novel method to construct solutions to such singular problems that allows for more general drift and diffusion coefficients and we establish weak convergence to relaxed solutions in this setting. With more restrictions on the coefficients we can establish an almost sure version showing convergence to strong solutions. Under some regularity conditions on the contagion, we also show a rate of convergence up to the time the regularity of the contagion breaks down. Lastly, we perform some numerical experiments to investigate the sharpness of our bounds for the rate of convergence.