The Sounders conceded twice in the opening 25 minutes with Giles Barnes netting a double before Shalrie Joseph gave the visitors hope just after the hour-mark at BBVA Compass Stadium.
However, Will Bruin netted in the 74th minute to give the Dynamo maximum points prompting some negative words from Schmid.
"Obviously we gave up some goals early. I thought our body language early in the game wasn't good," he said.
"We handed them opportunities early. The first goal was a little bit of a mistake on our part. Second goal that guy hits a great goal; there was nothing you could do."
However, Schmid felt his side were a lot better in the second half when they were trying to get back into the contest.
"We opened up a little bit, so that gave them some chances late, but that's more because we were opening up than anything they were doing," he added.
"I thought we fought and battled all the way until the end. I don't think we gave up; even in injury time we were still looking for goals."