I see three courses of action, the first of which addresses the core issue that caused your question, the second and third directly answer your question.
1. Educate the DM.
The easiest way to fix the issue, and my preferred way, is to have your DM properly use passive perception. If your DM learns how passive perception works, you no longer have to modify existing mechanics to account for a stat that your DM is choosing to ignore.
Your DM should be using passive perception to see if you notice things when you're not specifically looking for something. This would be used to notice the guy eavesdropping on your bar conversation, things subtly out of place in your home, or that your pockets are suddenly a bit lighter while in the market. Passive perception is used to notice things when you're not actively searching for them.
This is different than active perception where you are actively using your sense to find something. This could be trying to locate where an archer just shot at your teammate, finding where the goblin skulking in the shadows ran off to, or eavesdrop on a conversation going on behind closed doors.
The biggest benefit to using passive perception is secrecy. If the DM calls for a roll, you as a player now know that there is potentially something you didn't notice and you'll now potentially react to the roll (meta-gaming).
You know your DM better than us, so you would have to decide if proper application of the rules is feasible and how to approach the situation, but highlighting the DM's ability to be secret is a big selling point to prevent meta-gaming. Also, having your DM play by the rules as written (RAW) means home-brew balancing and altering of feats wouldn't be necessary, so less work for him overall.
2. Disallow the Observant feat if Passive Perception is not being used.
A quick search for stealthy monsters had me yield a Shadow and a Invisible Stalker as two decently stealthy monsters of differing levels. I'm sure better examples exist, however.
A Shadow is CR 1/2 and gets +4 to Stealth. A small group of these would be a viable encounter for level 2's, and normally allow for use of hiding mechanics to achieve advantages. Against such a high skill level, this wouldn't be such a threat. If your DM is not using passive perception, then it is also likely that they may be giving free active perception checks in combat (which also is not RAW) to notice hidden creatures, which further disadvantages stealthy critters.
An invisible stalker is a CR 6 and gets +10 to Stealth. The monk's stealth detection would be almost on-par with an invisible stalker's stealth skill if the Observant feat would confer +5 to all perception. However, an invisible stalker would make short work of most level 2 parties.
If you don't allow Observant to work this way, then the max a level 2 characters perception could be is +7 (+5 from 20 WIS, and +2 from Proficiency, unless I missed something). The difference here is that the character heavily invested their limited stat points to get a skill this high and sacrificed other benefits to get this.
As a tradeoff, this +7 player may not be dealing as much damage (lower STR/DEX/INT/CHR) or may not be as sturdy as (lower CON). Clerics, Rangers, and Druids have WIS as their spell casting modifier and wouldn't 'sacrifice' damage to max perception in this fashion, and none of these three classes would be using spells as their primary damage dealing source at level 2.
Also, no other feat gives the player a bonus to skills unconditionally in this way; they usually add extra ability to existing actions and give a single stat point.
3. Cautiously allow the feat as suggested.
If you allow Observant to be used this way, the max a level 2's perception can be is 12 (+5 from 20 WIS, +2
If the DM wants to give that player any challenging perception checks, he will have to scale up monster's stealth scores, which makes it that much more difficult for all other characters. Same goes for hiding traps or having any sort of secret communications; they'll either be trivially easily for this character or exceptionally difficult for the others to perceive.
