[RPG] Is half-orc and half-elf a possiblity

Yes, the half-elf is underpowered. According to D&D design staff Mike Mearls and Jesse Decker, as well as a Wizards of the Coast web poll, the half-elf is the weakest core race in D&D 3.5:

Mike Mearls

The half-elf is the least powerful race, because it is an elf with the weapon proficiency, secret door detection abilities, and racial ability adjustments removed and the bonus to Spot and Listen reduced. In return, the half-elf gains a +2 bonus to Diplomacy and Gather Information checks. These bonuses are useful only for a narrow range of characters – low Charisma characters and those who do not have Diplomacy and Gather Information as class skills gain little benefit from it since these skills operate against static DCs rather than opposed checks. In an opposed check, there's always a chance that you face an untrained or penalized foe, making any sort of bonus useful. Since both Diplomacy and Gather Information can be used untrained, they are poor investments unless you can use them to routinely beat high (20+) DCs. If anyone in the party aside from the half-elf invests in those skills, the half-elf's bonus is largely useless.

The ability to count any class as favored is a minor edge, especially compared to the human benefits. In comparison, the elf's secret door detection is useful to any character, while Spot and Listen are useful in almost every encounter.

Jesse Decker

Mike’s answer is correct, not because he chose the weakest race but because he demonstrated that the half-elf’s puny bonuses don’t compare at all with the other races. One of the not-so-obvious purposes of this question is to see how the potential developer deals with the word “weakest.” There can be all kinds of weaknesses in a roleplaying product, but the developer's job is to focus on the power level of game elements -- which means that interpreting this question as an analysis of a race’s combat ability is important.

Other popular answers to this question include the gnome and half-orc. While both of those races have their limitations (gnomes are mostly overshadowed by halflings, and half-orcs are severly limited in their choice of classes), both can shine in specialized builds.

As for how to balance it, I'd give the race +2 Charisma, -2 Wisdom. This takes the half-elf from a reasonably good bard to an excellent race of sorcerers and charismatic (if impetuous and short-sighted) military leaders. The Wisdom penalty is not a big deal for sorcerers, who get the good Will save anyway, and the Alertness feat from the sorcerer's familiar compensates for the Spot/Listen penalty. They make poor clerics, but this fits with their mixed heritage. They don't truly belong among the flock of with any one race's deities, and sharing the traditions of both peoples makes it more difficult for them to accept any one religion as the one true faith.

Alternate racial traits aren't traits

Alternate racial traits such as those listed in the descriptions of half-orcs and humans (for example, acute darkvision and adoptive parentage, respectively) are specific and unique to those races and different from the traits the GM usually allows a character to get two of.

Some of those traits are race traits, usually restricted to certain races. The FAQ is clarifying that, for example, a half-orc can pick half-orc and human race traits (although usually only one race trait per category can usually be selected; see Restrictions on Trait Selection). For example, a half-orc can pick the trait Almost Human (a half-orc racial trait) or Aspiring Bard (a human racial trait).

(Just in case, note that a member of a race only has available its race's racial traits to replace with alternate racial traits. That means, for example, a half-orc can't replace the human racial trait bonus feat with the alternate racial trait adoptive parentage because the half-orc just doesn't have the racial trait bonus feat. The FAQ's and so on could mean that were a racial trait shared by members of the half-whatever and whatever race, such a racial trait could possibly be replaced with an alternate racial trait that replaced such a racial trait from either the half-whatever side or the whatever side, but the GM must decide if the FAQ is, in fact, being that inclusive. Also, as of this writing, no such shared trait exists.)