I can't look at it right now, but I don't think that's going to work.
First, I think the two grounds are the same. If they are, when you hook 5v to the servo ground terminal, you will short out the power supply.
Second, I'm not crazy about using the difference between the 5 and 12 volt power rails to get 7 volts. The 5 volt rail is meant to source 5 volts, not serve as the sink for another power rail. For small currents, maybe, but you start pushing much power into the 5 volt output, I think you are going to have issues... If you've got a big enough load on the 5 volt rail to ensure that current never gets pushed into the output, that might work, but I'd consider it risky to run it that way.
RM