<PAGE>
 
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-K/A

[ X ]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
       ACT OF 1934

FOR THE FISCAL YEAR ENDED:  DECEMBER 31, 1997
                                       OR

[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT
       OF 1934

FOR THE TRANSITION PERIOD FROM __________ TO _________.

COMMISSION FILE NUMBER:  333-28031-1

   HEADLANDS MORTGAGE SECURITIES INC. (AS SPONSOR UNDER A SALE AND SERVICING
AGREEMENT DATED AS OF AUGUST 1, 1997 PROVIDING FOR THE ISSUANCE OF HELOC NOTES,
                                 SERIES 1997-1)

                       HEADLANDS MORTGAGE SECURITIES INC.
             (Exact Name of registrant as specified in its charter)

           DELAWARE                                     68-0397342
(State or other jurisdiction of             (I.R.S. employer identification no.)
 incorporation or organization) 

1100 LARKSPUR LANDING CIRCLE, SUITE 101,                  94939
        LARKSPUR, CALIFORNIA                            (Zip code)
(Address of principal executive offices)

                                (415) 461-6790
             (Registrant's telephone number, including area code)

Securities registered pursuant               Securities registered pursuant 
 to Section 12(b) of the Act:                 to Section 12(g) of the Act:

          NONE                                            NONE
    (Title of class)                               (Title of class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes [ X ]    No [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ X ]

State the aggregate market value of the voting stock held by non-affiliates of
Registrant.  The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of specified date within 60 days prior to the date of filing:

                                 NOT APPLICABLE

                      Documents incorporated by reference:

                                 NOT APPLICABLE
<PAGE>
 
                                    PART IV

ITEM 14   -    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

        (a) The following documents are filed as part of this report:

            3.      Exhibits:

                    Exhibit No.     Description
                    -----------     -----------

                    99.1*           Statement of Compliance of the Servicer.

                    99.2            Annual Report of Independent Accountant with
                                    respect to the Servicer's overall servicing
                                    operations.

                    99.3*           Statement of Compliance of the Issuer under
                                    the Indenture.

                    --------------------
                    *  Previously filed.

                                       2
<PAGE>
 
                                   SIGNATURES


      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Sponsor has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                    By:  HEADLANDS MORTGAGE SECURITIES INC.,
                                         As Sponsor


                                         By:  /s/ Gilbert J. MacQuarrie
                                              -------------------------
                                         Name:   Gilbert J. MacQuarrie
                                         Title:  Vice President, Treasurer 
                                                 and Secretary
Date: May 20, 1998.

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Sponsor
and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
 
<S>                                      <C>                                                   <C>
             Signature                               Position                                      Date
             ---------                               --------                                      ----                      
/s/ Peter T. Paul                        President and Director                                May 20, 1998
---------------------------------------  (Principal Executive Officer)
Peter T. Paul

/s/ Becky S. Poisson                     Vice President and Director                           May 20, 1998
---------------------------------------
Becky S. Poisson

/s/ Gilbert J. MacQuarrie                Vice President, Treasurer, Secretary and Director     May 20, 1998
---------------------------------------  (Principal Financial Officer and Principal
Gilbert J. MacQuarrie                    Accounting Officer)

/s/ Steven M. Abreu                      Vice President and Director                           May 20, 1998
---------------------------------------
Steven M. Abreu
                                         Director                                              May __, 1998
---------------------------------------  
Kenneth Siprelle
                                         Director                                              May __, 1998
---------------------------------------  
John Edmonds

/s/ Kristen Decker                       Vice President                                        May 20, 1998
---------------------------------------
Kristen Decker
</TABLE>

                                       3
<PAGE>
 
                               INDEX TO EXHIBITS
                                   Item 14(C)

Exhibit No.    Description
-----------    -----------

99.1*          Statement of Compliance of the Servicer.
              
99.2           Annual Report of Independent Accountant with respect to the
               Servicer's overall servicing operations.
              
99.3*          Statement of Compliance of the Issuer under the Indenture.

--------------------
*  Previously filed.

                                       4