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

                                   FORM 10-K

[ 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)
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<CAPTION> 
                           <S>                                              <C> 
                            DELAWARE                                          68-0397342
 (State or other jurisdiction of incorporation or organization)   (I.R.S. employer identification no.)
 
            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)
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<S>                                                             <C> 
Securities registered pursuant to Section 12(b) of the Act:    Securities registered pursuant to Section 12(g) of the Act:
 
                            NONE                                                          NONE
                      (Title of class)                                              (Title of class)
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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>
 
                       HEADLANDS MORTGAGE SECURITIES INC.
                           HELOC NOTES, SERIES 1997-1

                                     INDEX
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                                                                      Page
                                                                      ----
<S>                  <C><C>                                             <C>
 
PART I   .............................................................  3
         ITEM 1    -    BUSINESS......................................  3
         ITEM 2    -    PROPERTIES....................................  3
         ITEM 3    -    LEGAL PROCEEDINGS.............................  3
         ITEM 4    -    SUBMISSION OF MATTERS TO A VOTE OF
                        SECURITY HOLDERS..............................  3
 
PART II  .............................................................  3
         ITEM 5    -    MARKET FOR REGISTRANT'S COMMON STOCK AND
                        RELATED STOCKHOLDER MATTERS...................  3
         ITEM 6    -    SELECTED FINANCIAL DATA.......................  3
         ITEM 7    -    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                        FINANCIAL CONDITION AND RESULTS OF OPERATIONS.  3
         ITEM 8    -    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...  3
         ITEM 9    -    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                        ON ACCOUNTING AND FINANCIAL DISCLOSURE........  3
 
 
PART III .............................................................  4
         ITEM 10   -    DIRECTORS AND EXECUTIVE OFFICERS OF
                        THE REGISTRANT................................  4
         ITEM 11   -    EXECUTIVE COMPENSATION........................  4
         ITEM 12   -    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                        OWNERS AND MANAGEMENT.........................  4
         ITEM 13   -    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS  4
 
PART IV  .............................................................  4
         ITEM 14   -    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
                        REPORTS ON FORM 8-K...........................  4
 
SIGNATURES ...........................................................  5
INDEX TO EXHIBITS ....................................................  6
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                                       2
<PAGE>
 
                                     PART I

ITEM 1  -  BUSINESS

           Not Applicable.

ITEM 2  -  PROPERTIES

        Headlands Mortgage Securities Inc. (the "Sponsor") will furnish
information regarding the Mortgaged Properties by reference to the Annual
Compliance Certificates to be filed herein under Item 14.

ITEM 3  -  LEGAL PROCEEDINGS

        The Sponsor is not aware of any material pending legal proceedings
involving either the HELOC Notes, Series 1997-1 (the "Trust"), established
pursuant to the Sale and Servicing Agreement (the "Agreement") dated August 1,
1997, among First National Bank of Chicago, as trustee (the "Trustee"),
Headlands Mortgage Securities Inc., as Sponsor, Headlands Home Equity Loan
Trust 1997-1, as issuer (the "Issuer"), and Headlands Mortgage Company, as
servicer (the "Servicer"); the Trustee; the Sponsor; the Issuer or the Servicer
which relates to the Trust.

ITEM 4  -  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matter has been submitted to a vote of the holders of beneficial
interests in the Trust through the solicitation of proxies or otherwise.

                                    PART II

ITEM 5  -  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

To the best knowledge of the Sponsor, there is no established public trading
market for the Certificates.

        All of the HELOC Notes issued by the Trust are held by the Depository
Trust Company ("DTC") which in turn maintains records of holders of beneficial
interests in such HELOC Notes.  Based on information obtained by the Trust from
DTC, as of December 31, 1998, there were four (4) holders of the HELOC Notes.
 
ITEM 6  -  SELECTED FINANCIAL DATA
 
           Not Applicable.
 
ITEM 7  -  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS
 
           Not Applicable.

ITEM 8  -  FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
 
           Not Applicable.
 
ITEM 9  -  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE

        There were no changes of accountants or disagreements on accounting or
financial disclosures between the Sponsor and its accountants.

                                       3
<PAGE>
 
                                    PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
          Not Applicable.
 
ITEM 11 - EXECUTIVE COMPENSATION
 
          Not Applicable.
 
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The Sponsor is a wholly-owned subsidiary of Headlands Mortgage Company,
a California corporation.  Headlands Home Equity Loan Trust 1997-1 is a Delaware
statutory business trust wholly-owned by the Sponsor.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          None.

                                    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:

              1.      Financial Statements:

                      Not applicable.

              2.      Financial Statement Schedules:

                      Not applicable.

              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.


                                       4
<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: March 26, 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:

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<CAPTION>

<S>                          <C>                                                <C>
     Signature               Position                                                Date
---------------------------  -------------------------------------------------  ---------------

/s/ Peter T. Paul            President and Director                             March 26, 1998
---------------------------  (Principal Executive Officer)
Peter T. Paul

/s/ Becky S. Poisson         Vice President and Director                        March 26, 1998
---------------------------
Becky S. Poisson

/s/ Gilbert J. MacQuarrie    Vice President, Treasurer, Secretary and Director  March 26, 1998
---------------------------  (Principal Financial Officer and Principal
Gilbert J. MacQuarrie        Accounting Officer)

/s/ Steven M. Abreu          Vice President and Director                        March 26, 1998
---------------------------
Steven M. Abreu


---------------------------  Director                                           March __, 1998
Kenneth Siprelle


---------------------------  Director                                           March __, 1998
John Edmonds

/s/ Kristen Decker
---------------------------  Vice President                                     March 26, 1998
Kristen Decker
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                                       5
<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.


                                       6