I've got he same thing going on with my '93 4runner....The undercoating on the body just falls right off. The stuff on the frame is still pretty good though.

I'm pretty sure the stuff is dealer aftermarket, applied at the dealership at the time of sale....and probably for a hefty price. I spent some time working at body shops and garages when I was youngfer. Including a stink at a car dealership where I was the one who applied the aftermarcket undercoating. All the tell tale signs are there on my Runner.....overspray on the heatsheild and exhaust and none above the tranny.

If it's falling off, then scrap it off as you have been doing....get rid of all of the loose stuff. The problem is that the stuff is just old and dried out. Make sure you reapply a new coat or atleast use some spray paint on the newly exposed metal. Don't glop it on there either. Nice thin coats are all you need. When you glop it on there little holes and bubbles form that will trap water and cause your body and frame to rust later on.