Frank Costanza can still be Jewish...
His father is obviously Italian, but what RELIGION? Is his mother Jewish? He moved to America when he was four. By now he certainly would have lost an Italian accent. George did live on Long Island with Jerry, and if it is like real life, Jerry lived in Massapequa -- where there are a fair amount of Jews. So they could have lived in a Jewish neighborhood, hence their accents. Besides, Estelle is probably Jewish, thus George taking the religion of the mother making him Jewish.