porsche: It doesn't matter if the guy tore one of his arms off and threw it across the street to indicate how big the fish was, it's still simply exaggeration, not over-exaggeration. You can't draw a line; who decides where the line goes? Who says what's "expected" exaggeration in your example? Is four feet over-exaggerating? Six-and-a-half? Twelve-and-a-half? Or does the line start at twenty? And for who, you, or the other guy? It's too subjective to use in that way.

There CAN be expected exaggeration, It's already been said, but I guess you can over-exaggerate if exaggeration is already a stated target, and you EXCEED what's expected.

"Exaggerate the size of the fish you caught when you caught when you tell people about it."

"What, like...twenty feet?"

"You're a moron."

As for people saying you can under-exaggerate...if you're "under-exaggerating," you're still just exaggerating. What you're exaggerating is the diminishing qualities of a thing, that's all.

"You're losing a lot of blood from your armhole...".

"A drop or two, yeah." --> exaggerating how LITTLE he's losing.
"A bathtub or two, yeah." --> ...how MUCH...

Again, I guess under-exaggeration would fit if exaggeration is the goal, and you fall short. But "understating" or simply "sucking at exaggerating" would probably fit better.

People using "over-exaggerate" when they MEAN "exaggerate" does grate on my nerves. If people start using under-exaggerate with any frequency, I swear I'll shoot myself in the face twelve times.