FeAlN films were fabricated by reactive sputtering from an Fe alloy target in a nitrogen containing plasma. By varying the nitrogen content in the films, magnetic moment as high as 20 kG and coercivities less than 1 Oe can be achieved at room temperature. However, it has been observed that the soft properties of these films experience a reversible degradation at elevated measuring temperatures. The critical temperature, T0c, defined as the temperature at which the coercivity doubles, generally decreases as more nitrogen is incorporated into the film. T0c agrees well with the temperature where remanent squareness (Br/Bs) equals 0.83, indicating a reduced intergranular exchange coupling in films. However, T0c is far below either the reported Curie temperature of the γ′-Fe4N phase or that of the α-Fe phase, which are found in these films. It is suggested that an interfacial granular phase between the grain boundaries of α-Fe or γ′-Fe4N crystallites is responsible for the low T0c. When the temperature increases above T0c, the interfacial phase becomes paramagnetic, and the exchange interaction between crystalline grains becomes weak, thereby causing the coercivity increases.